Christian Bale as perspicacious hedge-fund manager Michael Barry in The Big Short
As this goes to press, global capital markets appear to be stabilizing after another period of intense, and scary stock market volatility. This set the context for the arrival in Britain of Adam McKay’s The Big Short – a film about the American sub-prime mortgage meltdown, based on the book by Michael Lewis.
It could be argued that the movie is late, and even outdated. But it is not in fact. It ends with the systemic failure of the system in 2007-9 – a crisis that has not gone away. On the contrary, it has rolled around from the US sub-prime housing market and Wall St. and on to the Eurozone, where Greece, Cyprus and Portugal were at the eye of the storm. Today financial volatility is centered on ‘emerging’ markets and in particular, China, and has unnerved financial markets around the globe. Continue reading
Mr Osborne’s most striking political achievement, with the connivance of the economics profession and media, is to reframe the debate about the most severe crisis in living memory away from finance and towards the welfare state – identified as causal of the crisis.
In reframing the debate he has succeeded in ‘capturing’ some of his opponents and convincing them of his framing and narrative. He has done so by accusing Labour of reckless management of state finances.
Now Labour, egged on as it was under Gordon Brown by orthodox economists in both the Treasury and academia, does share responsibility for ‘light touch regulation’ of the City. But in no way can the Labour government be found guilty of “overspending”. The opposite is true. Continue reading
Yesterday’s Guardian revealed a trio of leaked documents from the International Monetary Fund, the European Central Bank, and the European Union that revealed the true extent of Greece’s debt crisis. The documents – written by the tripartite collective commonly known in Greece and now much of the world as the troika – revealed that the institutions are not only aware that Greece’s 320 billion euro debt is unsustainable, but that even if the Greeks adopted the newly proposed memoranda of understanding, there is no chance the policies proposed would go anyway in clearing the debt. Instead, they propose ratcheting up Greece’s austerity by another notch, increasing the torture of a nation which has already lost 11,000 of their people to suicide as a result of the internationally-imposed austerity programme of the past five years.
In Greece, debt means death. As a result of the troika’s programmatic demands, upon which a steady flow of capital to the Greek financial system is reliant, a quarter of the Greek economy is dead. Unemployment has spiked to levels higher than that of the pre-war slump of the 1930s, with youth unemployment particularly high at 60%. As the state is worn down, and the protections it gave evaporating into the air with each moment that austerity continues, civilisation steadily collapses around the Greek people. Social unrest is high, the police have been infiltrated by the forces of the far right, with half of police officers voting for the openly fascist Golden Dawn in the 2012 general election. Wages drop by the day, basic necessities are unaffordable to the poorest of Greeks, with solidarity networks fuelled by hard working militants, young and old, springing up to ameliorate the worst effects of the crisis where once the state would have intervened. Continue reading
The bullying by Greece’s creditors continues. The latest ploy is to try, unilaterally, to interfere in Greece’s internal politics by re-defining the terms and purpose of Sunday’s referendum. It is patently clear that Tsipras called the referendum to ask the Greek people whether they accepted the latest bailout terms laid down by the creditors, yet the Eurozone 3 – Merkel, Hollande, and Juncker – are now claiming, on no evidence at all, that the referendum is about whether or not Greece wishes to stay in the Euro. It is no such thing. The technical question Greeks have to answer doesn’t even mention the single currency. The Eurozone leaders clearly fear that Syriza will win the referendum, and this clumsy attempt at interference is clearly designed to blackmail Greek voters into accepting the latest terms for a bailout extension. It won’t work.
The Eurozone line is that these bailout terms are final and there’s nothing further on offer. But of course that’s not true. They would say that, wouldn’t they? This is an extremely tense negotiation reaching its climax, and the participants will lay down conditions to try by any means to gain a settlement on their terms, saying for good measure that it’s their last offer, only to retreat to new terms and a new offer if their ‘final’ offer is rejected. In this case the cat is already out of the bag. The European Commission stated yesterday – for the first time in this long-drawn-out crisis, that it wanted to offer Greece debt relief. That is precisely what Tsipras has been demanding for 5 months throughout the stalemated negotiations. So why wasn’t this offered 5 months ago, and this whole crisis could have been averted?
It wasn’t offered then, and is only being offered now, because the most powerful interests within the Eurozone – the hardliner Merkel and the German banks – were determined to enforce their own principles of ordoliberalism on a compliant European economy, and thought they had the muscle to do so. It is only now when they fear that Tsipras’ latest move means they have lost control of the negotiations that they are hinting in the background that there could after all be a further compromise. Their reason of course is not concern about Greece which has suffered a 25% shrinkage of the economy comparable only to the Great Depression in the US in the 1930s, but rather about the future of their pet project, the Euro, which is the basis of German hegemony in Europe because in the long term no other country in the Eurozone can match German productivity, yet is precluded from regaining equilibrium via interest rate and exchange rate changes.
If the long-term unviable Euro is to survive, it must respect democracy equally, or more than, market power and in the immediate short-term re-open negotiations on the essential condition of a partial write-down of Greek debt (which currently at 180% of GDP even the IMF has pronounced is unmanageable) to a level consistent with economic growth (120% of GDP or below).
The IMF has placed a road-block in the way of a deal with the Greek government and it remains unclear whether any agreement can be reached. The prior agreement which the IMF rejected was itself already very onerous. But the IMF wants to shift the burden of paying for the crisis away from taxes on business and the better-paid towards more cuts in social protection. This is an insupportable burden as net median household incomes are already below €8,000 a year. Many multi-member households without work subsist solely on state and public sector pensions. Continue reading