Greek government approves brutal austerity measures in proposal to EU

By Alex Lantier
July 10, 2015
World Socialist Web Site

 

Greece’s Syriza-led government agreed to a massive new €13 billion (US$14.34 billion) package of austerity measures yesterday evening, less than a week after Sunday’s landslide “no” vote in a referendum on European Union (EU) austerity.

The proposal would be the deepest package of cuts since the EU austerity drive began in Greece in late 2009. It goes well beyond the proposed €8 to 9 billion in cuts initially demanded by the EU in talks with Syriza.

The 13-page proposal was submitted to the EU, International Monetary Fund (IMF) and European Central Bank (ECB) before the midnight deadline previously set by the institutions. In exchange for cuts, the Greek government is reportedly asking for a €53.5 billion ($59.2 billion) loan to the Greek state and some form of debt restructuring, allowing it to avoid state bankruptcy and remain in the euro currency area.

The austerity measures reportedly include sharp increases in the regressive VAT sales tax and an increase in the retirement age to 67 by 2022. The elimination of additional payments to the poorest pensioners will take place by the end of 2019, a year earlier than previously scheduled.

Plans for the privatization of state assets, including ports and airports, will go forward. The proposal also includes a reported increase of the corporate tax to 28 percent, rather than 29 percent, a reduction requested by the IMF.

In proposing the new austerity package, Syriza has with extraordinary rapidity repudiated the vote in Sunday’s referendum, which Syriza itself had called and presented as a model of democratic accountability. More than 61 percent of the population rejected precisely the measures that the government has now adopted.

Even as Syriza officially called for a “no” vote, Tsipras had no intention of fighting EU austerity. The prime minister expected to lose the vote and, in response, abandon office and leave it to another government to impose the cuts. (See also: Tsipras petitions EU for new austerity deal)

Following the vote, the Syriza-led government has moved as quickly as possible to reach an accommodation with the pro-austerity parties within Greece and approve a deal that would be acceptable to the European banks.

The measures were finalized in discussions between Greek Prime Minister Alexis Tsipras, Deputy Prime Minister Yiannis Dragasakis, Finance Minister Euclid Tsakalotos and Economy Minister Giorgios Stathakis—all from the ruling Syriza (“Coalition of the Radical Left”) party—and adopted by the Greek cabinet on Thursday.

The government is planning to seek a vote in the Greek parliament today, relying on support from the openly pro-austerity New Democracy and PASOK parties. On Saturday, eurozone finance ministers are scheduled to meet to review the proposal, followed by a meeting Sunday of the EU leaders.

The new austerity proposal was rushed through amidst threats from European officials to entirely cut off funding for Greece and force the country out of the eurozone. In response to these threats, Syriza continually refused to take any measures that would threaten capitalist property relations and rejected any appeal to workers throughout Europe for a common struggle against austerity.

It is uncertain whether an agreement will be approved by the EU, even on the surrender terms being offered by Syriza. Sections of the European ruling class are discussing forcing Greece to default on its debts, expelling it from the euro zone, and pushing it through a drastic economic crisis by forcing it to restore a devalued national currency.

German Finance Minister Wolfgang Schaeuble said yesterday that any significant restructuring of Greece’s debt was unlikely, as this would violate EU rules.

Other European officials have indicated a desire to reach agreement with the Greek government. Syriza members told the Guardian that French finance ministry officials had worked with Greek Finance Minister Tsakalotos to rewrite the austerity package Athens was proposing, in order to make it acceptable to the EU.

Donald Tusk, the chair of the EU summit, urged European officials to take certain measures to allow Greece to pay back its debt. “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” Tusk said.

Germany has also come under pressure from the Obama administration to ensure that Greece is not pushed out of the eurozone. On Wednesday, US Treasury Secretary Jack Lew publicly intervened to push for an agreement on austerity between Greece and the EU and call for some form of “debt restructuring.”

Criticizing those who “create more of these kind of life-and-death deadlines,” Lew said they were creating far greater economic and political risks, including a broader financial panic across southern Europe and the possible splitting of Europe. The US wants to ensure that Greece remains within NATO and continues to support the campaign of military and economic aggression against Russia.

With Greece’s banks still closed and depositors limited to €60 in daily cash withdrawals amid the crisis, the Greek economy is rapidly grinding to a halt.

The National Confederation of Hellenic Commerce released a report Wednesday that found that consumption had fallen 70 percent since the closure of Greece’s banks, costing €1.2 billion to the economy. Greeks are reportedly stocking up on key medicines as well as non-perishable foods, such as rice and pasta, fearing a possible collapse of supplies of imported food and medicine.

Planned US Coup in Greece?

By Stephen Lendman
July 08, 2015
Global Research

 

Washington’s geopolitical strategy when bullying fails is either assassinating independent leaders, color revolutions, military coups or naked aggression.

If Moscow-based independent investigative journalist John Helmer is right, Greek Prime Minister Alexis Tsipras is a marked man and SYRIZA governance on thin ice showing cracks:

 ”(a) putsch in Athens to save allied Greece from enemy Russia is in preparation by the US and Germany, with backing from the non-taxpayers of Greece  – the Greek oligarchs, Anglo-Greek shipowners, and the Greek Church.”

“At the highest and lowest level of Greek government, and from Thessaloniki to Milvorni, all Greeks understand what is happening. (Sunday) they voted overwhelmingly to resist.”

“According to a high political figure in Athens, a 40-year veteran, ‘what is actually happening is a slow process of regime change.’ “

Wherever neocon Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland shows up (Hillary Clinton’s handpicked choice for the job), trouble usually follows.

Helmer says she’s “in charge of warmaking in Europe.” Her notorious involvement in Ukraine’s February 2014 coup is well documented.

According to Helmer, she gave Tsipras two ultimatums in Athens last March – surrender to Troika demands and remain allied with US-dominated NATO’s anti Russian agenda.”

Her spokeman Mark Toner said Washington is “focused on, frankly, the opposite (of Sunday’s referendum), which is finding a path forward that allows Greece to continue to make reforms (more austerity), return to growth (by letting Troika bandits rape its economy and population), and remain in the Eurozone.”

Since the 19th century, Greece had five military coups or attempted ones. Junta dictatorship ruled from 1967 – 1974. Another one can’t be ruled out.

Over five dozen former high-ranking military officials fired a shot across the bow declaring their “oath to the Fatherland and the Flag. By choosing isolation, we place the Fatherland and its future in danger,” they warned.

They publicly called for a “yes” vote ahead of Sunday’s referendum. Will not getting it mobilize them along with other Greek dark forces, Washington and Brussels to oust Tsipras forcibly or otherwise?

Grexit “will make our country weaker,” they claimed – even though Greeks weren’t asked about it and most oppose the idea. “We will lose allies that have stood by our side. We will lose the strength we gain from associations and groupings to which we belong historically and culturally,” the former military officials said.

Ties to Washington and Brussels run counter to what best serves long-suffering Greeks.

Will conditions be made worse than ever by greater austerity if coup rumblings become reality? Is this US/Eurogroup’s Plan B?

Helmer cited political sources in Athens saying Tsipras and other SYRIZA officials acted preemptively to prevent one – replacing military and intelligence leadership with their own “but not radically.”

Moscow remains skeptical about Tsipras withstanding Washington/Brussels pressure – especially given dominant Germany’s hardline position.

He faces enormous pressure. His six months in office shows he promises Greeks one thing and does another.

He agreed to nearly all Troika demands. Not good enough. They want total surrender. Germany’s Merkel and France’s Hollande told him to capitulate fully for further bailout aid.

Greek banks remain closed. They’re close to collapse. The ECB raised the amount of collateral they must post for further emergency loans.

Does Finance Minister Varoufakis’ resignation signal Tsipras’ capitulation to follow – negating popular opposition to austerity he pledged to support?

Hollande spoke for himself and Merkel saying Tsipras must “offer serious, credible proposals” for bailout help – code language for demanding unconditional surrender, a Greek Versailles.

He and new Finance Minister Euclid Tsakalotos are heading to Brussels for further talks. Hardline Troika officials intend cutting them no slack.

Will Tsipras cave to their demands and betray millions of Greeks in the process? Given his record so far in office, it’s hard imagining otherwise. Hopefully he’ll surprise but don’t bet on it.

Stephen Lendman lives in Chicago. He can be reached at lendmanstephen@sbcglobal.net.

His new book as editor and contributor is titled “Flashpoint in Ukraine: US Drive for Hegemony Risks WW III.”

http://www.claritypress.com/LendmanIII.html

Visit his blog site at sjlendman.blogspot.com.

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

It airs three times weekly: live on Sundays at 1PM Central time plus two prerecorded archived programs. 

Financial Bombshells: Greece and JPMorgan

By Bill Holter
July 02, 2015
Global Research

 

Not that almost any and all news today is enough to make you scratch your head, two pieces of news yesterday were bombshells!  I am talking about Greece’s stance of staying IN the Eurozone and the Zerohedge article regarding JPMorgan “cornering” the global commodity markets.

Let’s first start with Greece, who could have seen this one coming?  They are taking the stance “Greece and ONLY Greece” can decide if they leave the EU.  Greece Threatens ‘Unprecedented’ Injunction Against EU To Block Grexit  I believe this is correct, there is no law allowing the EU to kick someone out.  The only way an exit can occur is if a nation decides to leave.  This is incredibly interesting because Greece can default and put a moratorium on payments yet remain as a Euronation.  I guess you might call it “squatter’s rights”, they stay …but don’t pay.  Before going any further, I do understand Greece originally entered the EU “fraudulently” and with well cooked numbers.  As I understand it, “too bad so sad” it is water under the bridge, was not caught upon their entrance and cannot be used to negate their inclusion now.

What is extremely interesting is this: the Greek debt has already been largely offloaded onto the balance sheet of the ECB.  This was done to try to insulate private bank balance sheets from the risk of default and thus being underfunded.  But a fork in the road now exists, as I understand it, if Greece leaves then the debt goes back to the original banks who own the debt.  If Greece stays, the debt will stay on the ECB’s balance sheet.  Do you see the ramifications?  If Greece leaves, we have a banking failure through Europe ... but if they stay then the ECB eats the losses.  Thinking this through, if Greece stays they will effectively force a mass printing by the ECB to cover up the losses.  This will effectively dilute the euro and certainly hamper the ECB’s ability to function as they desire.

Call me crazy but I don’t think this is by any mistake at all.  This is a financial chess match where Mr. Tsipras/Varoufakis and Vladimir Putin are using great gamesmanship.  I believe it was decided Greece will stay, not pay ..and watch the ECB/Eurozone suffer with this.  Eventually Greece will leave but that will be AFTER the fire and AFTER the smoke clears.  I also believe a pipeline deal through Greece is a foregone conclusion and as this whole thing plays out, Europe will become “closer” to Russia, China, India and the BRICS  …which means what exactly?  They will be further away from the U.S.!!!  This is not rocket science, we are watching socialists who have legally hacked into one of the West’s “cars” … and have the ability to control it!  They can start it, stop it, make it go right, left or even just turn it off!  Maybe I am giving too much credit and this was just a coincidence, I highly doubt it!  To top this strategy off, I still believe we will be served a “truth bomb” by Mr. Putin which will effectively cut the dollar off at the knees!

The other head scratcher is the revelation JP Morgan has cornered the commodity markets

http://www.zerohedge.com/news/2015-06-29/jpm-just-cornered-commodity-derivative-market-and-time-we-have-proof .

Before starting on this one, let me say there are many moving parts and unknowns (probably designed this way).  I have queried my mentor and spoken with Jim, I have spoken to several others whom I respect and value their opinions.  Though the takeaway was by no means unanimous, the following is my personal opinion.

To set the stage, it must be understood the U.S. is at WAR, a financial war where the survival of the dollar is at stake.  We watched late last year and early this year where huge pressure was put on the price of oil.  This I believe was done to pressure Russia as energy is their biggest export.  Oddly enough, Russia and our “ally” Saudi Arabia just signed six deals last week.  We do not even know what these deals were but a good speculation is Saudi Arabia is moving toward Russia and away from the U.S..  Remember, the Saudis are the cornerstone underlying the petrodollar.  Gold and silver have also been pressured at every turn over the last four years and in particular the last 12 months.

I assume JP Morgan and the Fed are one and the same.  There have been stories JPM has amassed 350 or more ounces of silver.  We also know China/Russia/India have been huge buyers of gold.  We now know JPM has increased their derivatives by over $3 trillion in just one quarter.  It is obvious to me, they are the ones sitting on the paper prices of gold and silver.  This would make sense for the Fed to attack the metals and thus support the dollar.  In fact, standard procedure in any war is to strengthen your currency while weakening your opponents.  I believe the neocons know the bottom of our “gold barrel” is close at hand, they have decided to go all in on price suppression knowing full well “contracts were made to be broken” (defaulted on).

 

Bill Holter

Holter-Sinclair collaboration

Comments welcome!  bholter@hotmail.com

Greeced Lightning! Will Greece Default? Will Athens Cut a Financial Deal with Moscow and Beijing?

By Bill Holter
April 7, 2015
Global Research

 

We seem to have finally arrived at some sort of moment of truth regarding Greece and their inclusion in the EU.  The speculation is they will be out of money by April 9th, this Thursday, unable to make a less than 500 million euro payment.  Please keep in mind they have already been raiding the country’s pension plans to fund day to day services.  How large of a “dent” they have already made remains to be seen but that is not the point.  The point is this, any person, corporation or government who needs to dig into retirement savings for daily operations is like buying a carton of cigarettes with a credit card at 14.99% …and then carrying the balance!

Before laying out their potential options, please keep in mind that Mr. Varoufakis  was in New York this past weekend meeting with Christine Lagarde , Mr. Tsipras plans a trip to Moscow for Tuesday.  Are they pleading for unpaid bailout funds from the IMF?  And if they don’t get them, do they cut a deal and fall into Russia’s arms?  This, just as so many nations have pledged their allegiance to the East and the AIIB bank (topic for tomorrow), Greece may be forced into a pivot toward the rising Sun.  They do however have something left to offer, they stand between Turkey and Eastern Europe, they can provide a route for Russian gas to flow to Europe.

What options does Greece have left?  As I see it, they really only have three, and all with blurry edges.  First, they can cut some sort of deal with Germany (the EU) and the IMF.  They can kick the can down the road by extending maturities of existing debt and restructuring it.  The IMF still owes past monies pledged in bailouts, will they really throw new money away knowing it cannot be paid back?  Obviously this does nothing to face the real problem, Greece simply has too much debt for the size of their economy (this is a global problem but not “admitted yet”).  This option may have been taken off the table on Friday.  As a side note, it was reported Friday by Der Spiegel the IMF evacuated their Athens office.  Why would they do this?  I can only come up with one or two scenarios.  The IMF is giving up and know it is over … or, they are getting out of town while they still can.  Maybe they realize massive social unrest will be unleashed and don’t want to see their employees hanging from lamp posts?  This was denied by Saturday but interesting nonetheless!

Their second option is to just default.  If they cannot make debt payments, they simply don’t pay and thus become classified as a default.  The next question is whether or not they would stay in the EU?  Would they want to?  Or even be allowed to?  Option number three, an offshoot of number two, is Greece defaults and they decide to leave the EU (or are kicked out) and join team Russia.

My guess is we will see Greece default, leave the EU and cut a gas pipeline deal with Russia becoming a stepping stone for China’s “silk road”.  At this point, it’s the only thing that makes any sense …if you are Greek and try to do what is best for Greece.  A story also making the roundson Friday was preparations to re issue the “drachma” .  If this is true, I would say the decision to leave the EU has already been made except for the formalities!  The next question is the biggie, and one which will affect the entire world.  How do the markets and financial systems react to this?

Before exploring this, James Turk proposed a theory the Greek banks will be bailed in as their deposit balances slip down to equal the close to 100 billion Euros that Greece owes the ECB.  He believes this will be done within the next 10 days or so.  In my opinion, there is one big ”IF” in this theory.  I would question whether or not the ECB or even the BIS would have the authority to do Cyprus style bail ins if Greece leaves or has already left the EU.  Wouldn’t this be a sovereign decision?  One made by the Greeks themselves?  If I were a Greek depositor, I wouldn’t however hang around to see how it turns out, I’m just not sure if the authority exists to bail in Greek banks?  Another story out over the weekend is Germany may be preparing to freeze deposits of wealthy Greeks, will the rest of Europe follow?

As for market reactions, if Greece does end up cutting a deal with Russia/China and in fact does default, the first and most obvious reaction will be a further crash in the Euro itself.  Participants will then turn their attention to Spain, Portugal and Italy and ask “who’s next”?  The thought process will be frenzied with investors wanting out first and asking questions later.

A Greek exit will be extremely complicated.  They owe 350 billion euros, much of this debt was held inside under collateralized German and French bank portfolios, much of this was “swapped” out with the ECB.  A default by Greece would “un swap” these bonds and thus bring the question of solvency to the heart of the Eurozone.  Even more complicated is how the money will be handled for the “Target2″ amounts owed to other Euro nations?  This is a running balance of payments accounting for countries running trade deficits versus surplus nations.  Greece obviously cannot pay for their already accumulated deficits, the question is, who eats the loss?  Then of course there are derivatives at maybe 10 times the amount of debt outstanding, now we are talking big money and in the trillions.

Hedges will be broken, losers busted and winners not paid.  The derivatives chain will be shaken by massive valuation swings and then broken by losing counterparties becoming insolvent.  As I have said many times before, we live in an “instant information” age where computers (programmed algorithms) will all move in the same direction and all at once.  In my opinion, a true Greek default has the potential of shutting down global markets within 48 hours of an announcement.

As I wrote last week, Greece is just one of three or more potential flash points which have the ability to tip our world upside down,  The U.S. has sent 50 Abrams tanks to Ukraine, specifically defying Russia’s warnings.  The Austrian banking system is experiencing a systemic margin call and one that will reach the German banks themselves.  We also have the U.S. throwing political matches all around a very dry Middle East.  We fight against the Iranians in Yemen and alongside them in Iraq.  We back the Saudis who just joined the Asian infrastructure bank against U.S. wishes.  It is not even known if we still back the Israelis who also joined the AIIB.  I have no idea what history will exactly point to as the spark, I do know “Greeced lightning” will be a good description as to the speed of the collapse once started.

The significance of the election of Syriza in Greece

Chris Marsden
January 27, 2015
World Socialist Web Site

 

Syriza and its leader Alexis Tsipras were able to exploit the mass discontent produced by the brutal austerity measures imposed since 2010 on the Greek population. But Syriza’s election victory does not express a political development, a step forward, progress or anything of the kind by or for the working class.

In its origin, social composition and politics, Syriza is a bourgeois party—one of many, including the Democrats under US President Barack Obama—that come to power making promises of “hope” and “change” and then impose policies of austerity and war. It will inevitably betray, sooner rather than later, the aspirations for an end to social hardship and suffering that it has cynically exploited.

Nothing better illustrates the real political character of Syriza than its choice of coalition partner. The Independent Greeks are a right-wing nationalist party formed in 2012 by Panos Kammenos, a former deputy shipping minister and member of the conservative New Democracy party who was honoured by France’s Gaullist President Nicolas Sarkozy, along with ten other New Democracy MPs.

The Independent Greeks agitate against immigration and multiculturalism, while advocating a Christian Orthodox education system and the formation of a patriotic “Democratic Front.” Kammenos rails against “money lenders from abroad” and recently claimed that Greek Jews paid less in taxes than others and were given preferential treatment.

The media is portraying Tsipras’s choice of the Independent Greeks as a “surprise” pairing, but the Syriza leader ran his election campaign with precisely this coalition in mind. His final election rally was dominated by calls for “a new social and patriotic alliance” and an end to “national humiliation,” along with appeals to anti-German chauvinist sentiment. Among his first public acts following the election was Tsipras’s reception, at his own request, by the archbishop of Athens and all Greece, Ieronymos II.

Tsipras and Syriza have other notable friends on the far right. Their victory was hailed by Marine Le Pen, leader of France’s National Front, as a “monstrous democratic slap” given by “the Greek people” to the European Union.

The New York Times all but endorsed Syriza’s victory as the only way of saving Greek capitalism and the European Union. In an editorial posted Monday on its web site, the Times noted favourably that Tsipras “has signaled to Europeans that he is ready to moderate his ambitions once in office.”

The newspaper called on German Chancellor Angela Merkel to renegotiate Greek debts and work with Syriza, writing: “Greece needs some breathing room, not only to give Mr. Tsipras a chance to turn the country around, but also for the sake of the rest of Europe.” It proceeded to give the new prime minister his marching orders, declaring, “Of course, Mr. Tsipras must use his popular mandate to push through the fundamental domestic reforms that his predecessor, Antonis Samaras, had begun.”

All of this will be dismissed as irrelevant by Syriza’s numerous apologists among the petty-bourgeois pseudo-left groups. They have hailed Syriza as “left,” or “socialist,” or even (according to Left Unity in the UK) the head of a “workers’ government,” which (in the words of the International Socialist Organisation in the US) “needs the support of workers and social movements across Europe.”

Syriza itself makes no such claims. Tsipras declared prior to the election: “Syriza does not want the collapse but the rescue of the euro… And saving the euro is impossible for the member states when public debt is out of control.” His then-shadow development minister, George Stathakis, told the Financial Times, “We want to make life easier for businesspeople, to help remove problems with bureaucracy that they complain about.”

If Syriza is socialist, this has certainly escaped the attention of the financial oligarchy. On the day of its election, the euro recovered from an 11-year low against the US dollar and all of the world’s main share markets rose in value. Global investors clearly believe that Tsipras is, as Margaret Thatcher once said of Mikhail Gorbachev, someone they can do business with.

Syriza has come to power based upon a programme that articulates the interests of a powerful section of the Greek bourgeoisie and more privileged sections of the upper-middle class. It makes its appeal to yet more powerful forces: the imperialists of Europe and the United States.

The austerity measures demanded above all by Germany have not resolved the economic crisis that erupted in 2008, but exacerbated it. The destruction of workers’ living standards, coupled with the hoarding of money by the major banks and global investors, threatens to plunge Europe, and with it the world economy, into a deflationary spiral and still deeper depression.

Earlier this month, the New York Times warned that Europe’s economy had reached a “psychological inflection point” with its descent into negative inflation for the first time since the depths of the global financial crisis in 2009. The Times warned that “the latest data is adding concerns that Europe is headed for a new financial and economic crisis.”

This is what led the European Central Bank (ECB), against opposition from Germany, to announce on January 22 a quantitative easing (QE) programme involving combined monthly purchases of public- and private-sector securities, including government bonds, totalling at least €1.1 trillion by 2016.

The move, both advocated and welcomed by Tsipras, has nothing to do with ending austerity. Its architect, ECB head Mario Draghi, has called for QE to be combined with “progress on the important structural reforms—more flexible labour markets, less bureaucracy, lower taxes,” especially in the highly indebted countries in southern Europe. There, Draghi declared, “Reforms have waited too long. It is now time to implement them. That’s my message.”

As with previous stimulus measures, whatever money is pumped into the economy will go overwhelmingly to the banks and corporations and be paid for by the working class. Syriza will be instructed to implement whatever attacks are deemed necessary by the European Union, the European Central Bank and the International Monetary Fund.

If there is any renegotiation of the “Memorandum” governing the terms of Greece’s debt repayment, it will be confined to allowing Syriza a little more time to impose reactionary measures on a politically restive and socially desperate working population.

“We are very motivated to work with the new Greek government to maintain the recovery path,” said Jeroen Dijsselbloem, speaking on behalf of the euro zone’s finance ministers. He added, “We all have to realise and the Greek people have to realise that the major problems in the Greek economy have not disappeared and haven’t even changed overnight because of the simple fact that an election took place.”

Tsipras may make some initial small or symbolic concessions to popular sentiment. However, they will be designed to win himself the time needed to reorient the policies of the bourgeoisie, reorganise the state, and disorient and demoralise the working class before a more decisive offensive is mounted.

During the visits Tsipras made to the US and in various discussions with American officials, the CIA will have sought his reassurances that Greece will pursue a foreign policy fully in line with the essential interests of the American bourgeoisie. Greece’s location in the Mediterranean and its proximity to the Middle East make it geopolitically crucial to the US in confronting China and Russia.

Tsipras will have been questioned about Syriza’s attitude to the growing investment of China in Greece, to the crisis in Ukraine, and to NATO’s encirclement of Russia. The coming months will reveal the dangerous implications of the reassurances he no doubt offered.

The International Committee of the Fourth International rejects with contempt the political excuse offered by the petty-bourgeois pseudo-left to justify support for Syriza and its pro-capitalist agenda—that a Tsipras government is a necessary “experience” for the working class, from which it will somehow come to understand the necessity for genuinely socialist policies.

Such sophistries are advanced only to oppose the emergence of a revolutionary movement of the working class, a development possible only through a relentless political exposure of Syriza. This task is undertaken by the World Socialist Web Site in order to prepare workers and young people for the decisive struggles they face in Greece and internationally.

 

 

Sharp market falls over euro and oil price slump

By Nick Beams
January 6, 2015
World Socialist Web Site

 

European and US equity markets fell sharply yesterday as a result of another drop in oil prices, fears of financial instability in Europe over Greek debt and the signs that global deflationary pressures are increasing.

In the US, the Dow Jones index finished the day 331 points down, a fall of 1.86 percent, while the S&P 500 was down by 1.83 percent. The Vix, a measure of market volatility, jumped by 12 percent. Earlier in the day, European markets fell by around 3 percent.

Currency markets also exhibited instability. The US dollar hit a nine-year high against a basket of currencies, while the euro touched a nine-year low, amid concerns over whether the Greek election, to be held on January 25, would spark political instability if the opposition SYRIZA coalition were to win.

The first issue before the incoming Greek government will be to sign off on a new debt agreement. The country was given a two-month extension, to the end of February, on the present bailout plan.

The main factor in the fall in US markets appears to have been the further sharp decline in oil prices, continuing the downward trend that started in June, which was accelerated by the Saudi-led OPEC oil cartel’s decision not to cut production levels.

West Texas intermediate crude yesterday fell below $50 a barrel, its lowest level for five years, while Brent crude, regarded as the global benchmark, dropped by more than 6 percent to under $53 per barrel. The price of oil is now heading down to the levels reached in 2008-2009, when the global financial crisis saw it plummet from $100 per barrel to around $40.

The falling oil price is indicative of the deflationary pressures in the world economy as a result of continuing stagnation in Europe and clear signs that the Chinese economy is slowing.

The drop in the euro was set off by a comment by European Central Bank (ECB) president Mario Draghi during an interview published last Friday. Draghi said the risk of deflation in Europe was higher than six months ago, indicating that the ECB is getting ready to extend its so-called quantitative easing when its governing council next meets on January 22.

The euro fell further on a report published over the weekend in the leading German news magazine Der Spiegel that German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble had reached the conclusion that it was no longer necessary to keep Greece within the euro zone at any price and that a Greek exit would not create a financial crisis, as it threatened to do in 2012.

“The danger of contagion is limited because Portugal and Ireland are considered rehabilitated,” Der Spiegel quoted an unnamed government source as saying. Thus, Germany regarded a Greek exit as “bearable.”

Following the article, the Merkel government said it was working on the assumption that no matter if SYRIZA won the election, the next Greek government would continue to abide by agreements reached with EU institutions.

Under the austerity program dictated by the “troika”—the ECB, the International Monetary Fund and the European Commission—the Greek economy has contracted by 25 percent over the past six years. Even assuming a growth rate of 2 percent per year, the Greek economy would not attain the levels it reached in 2007 until after 2027.

SYRIZA, the “Coalition of the Radical Left,” has abandoned any commitment to repudiate international debts, or restore previous cuts. It now talks of debt “renegotiation,” while insisting that Greece remain within the euro zone.

The financial markets have taken SYRIZA’s measure and recognise that a SYRIZA government of itself is no danger. There is the underlying fear, however, that any election victory could spark a movement from below that could begin to break out of the political straitjacket that has so far contained the working class.

One of the factors that may have led German authorities to consider a Greek exit “bearable” is that Greece’s debt has largely been transferred to public institutions. Consequently, German banks would not be as heavily impacted as they would have been three years ago.

It is estimated that more than 80 percent of Greece’s debt is now held by official creditors, including the International Monetary Fund and the European Stability Mechanism, which functions as the euro zone’s rescue fund.

While the prevailing view in financial circles, at least to this point, is that the euro zone would be able to “handle” a Greek exit, other powerful forces, in the form of deflation and the prospect of a third recession since the financial crisis, are stretching the monetary union.

Inflation figures will be published tomorrow and there are indications that they may record a negative result for the year, after an increase of just 0.3 percent for the year to November. Fears of a negative outcome were increased following yesterday’s news that German inflation had fallen to a five-year low.

Draghi is insisting that the threat of deflation, which increases the level of real debt and interest payments for banks and financial institutions, must be countered by further quantitative easing, involving, in some form, ECB purchases of sovereign debt. However, German Bundesbank president Jens Weidman, who sits on the ECB’s governing council, strenuously opposes the purchase of government debt.

According to former German foreign minister and Green Party leader Joschka Fischer, the policy differences threaten to turn “politically explosive” because they are “becoming a conflict between Germany and Italy.”

Those conflicts are set to intensify. This time last year, the official view was that Europe was starting to recover. But after a brief upturn, growth began to fall, most significantly in the so-called core countries, France, Italy and Germany.

Economic stagnation brings rising debt levels. Despite the imposition of austerity measures, Italy’s debt ratio has increased from 116 percent to 133 percent of gross domestic product (GDP) over the past three years because GDP is not rising fast enough to keep pace with interest costs.

As an article in yesterday’s Wall Street Journal noted, 2014 was supposed to have been the year when the euro zone exited the debt crisis, as growth returned to the region. Instead, “the eurozone is arguably now in greater peril of breaking up than ever before.”