By David Stockman, David Stockman’s Contra Corner:
We can heartily praise Alexis Tsirpras for calling bull on the destructive puzzle palace economics thrust on his country by the hypocrites and liars who rule from Brussels. And his finance minister designate, economist Yanis Varoufakis, is surely on the right track when he targets the rent-seeking bankers, big businesses, and media operators who have plundered the Greek state for decades.
Indeed, his pledge that “we are going to destroy the Greek oligarchy system” should resonate throughout the length and breadth of Europe. After all, what has smothered growth, enterprise and hope in the EU is exactly the kind of crony capitalist corruption of economic life and exploitation of the state that had already wrecked the Greek economy – even before the Trioka administered the coup de grace.
So the Syriza Shock is an inflection point. It represents the beginning of the end of unimpeded rule by the elitist apparatchiks who dominate the central banks and the economic policy machinery of Brussels, Washington and London. Overwhelmingly, their half-baked Keynesian and statist solutions have propped up the giant banks, fueled stupendous inflation of financial assets and enabled an era of obscene gambling windfalls to the very rich unprecedented in modern history.
But what centrally administered financialization has not done is relieve the middle and working classes from a relentless assault on their living standards or a growing recognition that their voices have been totally muted in the halls of government. So it was only a matter of time before a revolt of the “demos” would materialize; and, needless to say, what could be more supremely fitting than that the insurrection has started in the very land where the demos first found its voice?
But here’s where the good news turns into the heavy trauma ahead. Greece’s problem is not simply the oppressive details and features of the “memorandum” imposed by its Troika overlords.
The true evil is the very structure and modus operandi of the entire EU and its euro based monetary system. Greece will forever be under the boot heel from the north if it seeks to merely “restructure” its debts and supplicatory relationships with Brussels and Frankfurt – even if it plays a resolute, courageous and crafty hand of poker during its upcoming “negotiations” with the EU and IMF apparatchiks.
The fact is, Brussels is the epicenter of an utterly failed superstate, and the ECB is a radically misconceived monetary experiment that has no place to go except toward an eventual violent implosion. Moreover, the relevant irony here is that these wholly misbegotten institutions have mis-appropriated the very ideas – wider scope for open trade and productive enterprise and the conveniences and efficiency of common money – on which a Greek revival truly depends.
Stated differently, the EC and ECB are about centralization and elite governance of political and economic life – the polar opposite of their phony neo-liberal narrative. They embody the conceit that by “going big” and empowering “the best and the brightest” to manipulate the machinery of the state – including its central banking branch – that centralization will overcome the disabilities, economic barriers and parochial follies of nation-state economics and national currencies.
The wholly unlikely and smashing victory of Syriza is proof positive that these foundational assumptions are wrong. Bureaucratic centralization does not even remotely deliver the economic virtues and prosperity of free markets; it delivers, instead, a mindless outpouring of rules, dictates and taxes – because that’s what policy apparatchiks do – which impede commerce and enterprise throughout the superstate as a whole (i.e. the EC). At the same time, of course, it empowers the central apparatchiks to leverage their monopoly on fiscal resources and legal authorities to ride roughshod on the common folk who inhabit the regions, former states and localities – especially during times of trouble and duress when the latter most go hat-in-hand seeking subventions from the center.
Likewise, the “euro” doesn’t even remotely resemble common money – that is, gold-backed national currencies at fixed exchange rates – of the type that brought rising efficiency, trade and constructive economic integration to the European family of nations before 1914.
Instead, the “euro” is just a pretext for a rotten regime of hyper-activist central banking controlled by unelected monetary central planners pursuing crackpot theories and doctrines that destroy everything which authentic common money can accomplish. Namely, honest price discovery, efficient allocation of capital and self-correcting financial discipline that keeps at bay the gamblers and punters who inexorably gravitate to financial markets, and which ultimately holds them accountable for their fits of folly and greed.
At the end of the day, the route to the prosperity of freer markets in goods, labor and capital is smaller states, not superstates. The way forward is through rejecting trade protectionism and mercantilist fiscal subsidies and tax privileges as a matter of domestic policy and entering reciprocal agreements to open markets abroad.
Likewise, the route to honest, efficient common money is to eliminate central bank intervention in capital and money markets entirely; replace interest rate pegging with free market prices; remove once and for all the noxious idea that central bank “puts” and the wealth effects manipulation of risk asset prices is a magic elixir that causes economic growth and higher living standards; and, most especially, absolute renunciation of the fraudulent practice of monetizing the public debt.
So the retention of local political sovereignty and the dignity of smaller scale democracy is compatible with, not inimical to, a regime of freer markets for entrepreneurs, labor and consumers; and an honest financial system free of crony capitalist exploitation and plunder.
The Syriza Shock is at its essence a demand rising up from the demos for recovery of exactly this kind of “sovereignty” and “dignity”, as Mr.Tsipras has so eloquently put it. But the monumental challenge facing the new Greek government is that these democratic virtues can never be recovered by “negotiations as usual” with the arrogant, corrupt and self-serving apparatchiks of the EU and ECB. Nor can they be sustained if Greece remains shackled – even under a new, more balanced and “friendlier” memorandum of affiliation and obligation – to these failing institutions.
Fortunately for Greece, the EU is already on the slippery slope towards its demise. The strategy of escape, therefore, is about avoiding debilitating future costs, not retaining sustainable benefits.
The utterly foolish plunge by Draghi and his ECB money printers into full-bore QE, for example, has already put the euro into a death spiral. This means that the hedge fund gamblers who piled into sovereign debt of France, Italy and the other peripheral countries waiting for Draghi to redeem his lunatic pledge to print-whatever-it-takes, are poised with their fingers on the sell button.
In fact, today’s yields for 10-year French, Spanish and Italian debt at 0.54%, 1.35% and 1.48% respectively, are patently absurd. These are the obligations of failing, aging, dirigisme-ridden welfare state economies that would pose profound, hair-curling credit risks to real investors. But there are none. The so-called market for EU-19 sovereign debt is just one gigantic front-running speculation that will end in a firestorm of broken confidence in the ECB and relentless dumping of the vastly over-valued bonds which have been temporarily sequestered in the financial parking lots of hedge funds, prop desks and clueless and mostly already insolvent national banks.
So the central goal of Greece’s new government should be escape from the looming EU/ECB disaster, not a re-set of the terms of its fetters and servitude. If the new government of Greece really means to liberate its people, it would repudiate its debt to the IMF entirely – for it is the despicable arrogance of the IMF apparatchiks that have brought Greece’s economy to its lamentable state.
Likewise, if a 50% haircut of its debt in 1953 was good enough for Germany at the time, it is also good enough for Greece today. What the new government needs to “negotiate” is the time period for repayment of the balance, which by all rights should be considerable. After all, even the vengeful victors at Versailles were willing to give Germany 50 years to make its reparations – and the Germans actually were co-perpetrators of the immense war carnage that encumbered Europe, not its victim.
But the operative matter is “settlement” of the Greek debts, as in the notion of final and forever. The new government need not worry in the slightest that its “credit” might be damaged with the IMF and EU. These are destructive agents of the global elites’ statist rule; Greece must never go back to them, not for a cent.
What Greece needs to do, instead, is re-establish its own credit and re-constitute its own money and central bank. But there is a huge catch, and its undoubtedly not really within the mind-set of the motley leftist coalition which the Greek people have turned to out of sheer desperation.
A mini-ECB on the Aegean would only compound the nation’s misery and expose the long-suffering Greek people to an even more traumatic round of hyper-inflation and financial strangulation.
Instead, what Syriza must seek is an honest central bank that does not coddle it commercial banks and financial gamblers; does not pretend to fix the price of money and debt and micro-manage the domestic economy; and is restricted to the narrow remit that was accorded to the classic bankers’ bank of pre-Keynesian times. Namely the Bagehotian function of providing back-up liquidity at a penalty spread above the free market interest rate against good commercial collateral that represents production already made in the economy, not an open-ended call on future taxpayers.
Likewise, if Syriza want to rid itself of the Greek oligarchy and the plague of crony capitalism, it needs to shrink the vast expanse of the Greek State which not withstanding “austerity” still totals nearly 60% of GDP. This means drastically reducing its essentially useless military; means-testing its extensive public pensions and other social welfare benefits; and eliminating the vast array of its costly domestic subsidies and mercantilist economic arrangements.
Moreover, Greece must finance its revamped state with honest taxes on the people based on a distribution of burdens that its politics can embrace; and, if it must incur fiscal deficits, it needs to rely on honest borrowings in the capital markets, not monetization by the central bank.
For a government steeped in leftist doctrine that’s a tall order, to put it mildly.
But here’s the thing. If the new government pursues the path of negotiations with Brussels and a “re-set” of its debt and obligations within the EU, it will inexorably betray its mandate to restore Greek sovereignty. At the end of the day, a negotiated re-set will only amount to reshuffling the terms of Greece’s servitude to a superstate and central bank disabled economic system that is already going down for the count. By David Stockman, David Stockman’s Contra Corner
The ECB’s QE is about to commence, But it is fraudulent credit – dangerous, toxic stuff. Read… Mario Draghi: Charlatan of the Apparatchiks