More bad news on the Greece front in Europe: the Eurozone has refused to extend bailout provisions for Greece:
A Eurogroup statement said Greece had broken off negotiations over a new bailout deal “unilaterally”. Late on Friday, Greek PM Alexis Tsipras called a surprise referendum for 5 July over the terms of any new deal. Greece has to pay â‚¬1.6bn (Â£1.1bn) to the IMF on 30 June. Without new funds, there are fears Greece may leave the euro and its economy may collapse. Greek Finance Minister Yanis Varoufakis said Greece would still try to secure a bailout deal that could then be put to a referendum. “In these crucial moments, the Greek government is fighting for there to be a last-minute deal by Tuesday,” he said.
The failure of the negotiations so far has been driven by hard line austerity demands by the Eurozone austerity coalition, which has driven Tsipras to take the deal before the Greek people for a referendum. That bit of popular democracy apparently came as a shock to German and French bankers, who couldn’t understand how any domestic leader could be so crazy as to actually take a vote of their own people before implementing a destructive austerity agenda.
It would be one thing if the supposedly wise centrist economic gurus had any idea how to jumpstart an economy. But they don’t. They praised Ireland as the “Celtic Tiger” for hollowing out and financializing its economy, which just as surely led to its collapse. They predicted ruin for Iceland when it decided to keep it social programs and tell the bankers to shove off and go to jail, yet Iceland is managing just fine. And Greece? Austerity is only driving Greece farther into recession. As Paul Krugman notes:
This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.
The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity.
Also, as Dave Dayen noted at Salon, the troika’s insistence on austerity for Greece is part of an ideological power play designed to enforce center-right economic theories in the face of objective evidence showing that they just don’t work.
It seems like a presumptuous and arrogant thing to say, but the most respected centrist economic voices both here and abroad simply don’t understand how modern economies actually work, and what is wrong with them. Taxation on the wealthy doesn’t harm growth. Recession-induced deficits aren’t best cured with doses of austerity. The problem, generally, is a lack of adequate consumer demand–not an excess of spending or taxation. It’s shocking that these facts aren’t more obvious and well-understood. Or maybe they are, and it’s simply not in the interest of the financial elite to understand them.
Either way, if the creditors hold firm to their austerity demands and Greek leaders (rightly) remain firm in taking the deal to their own people, we could see Greece exit the Eurozone. And from there, who know what other countries might follow suit in the contagion.