Economics, EU, Greece, latest
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James K. Galbraith on Greece: Austerity without debt relief

by Lynn Parramore, via DDP

Economist James K. Galbraith warns that ‘unrealistic expectations’ by Athens’ creditors is a recipe for turmoil.

A breakdown in negotiations may be the best outcome of Monday’s Eurozone finance ministers’ meeting on debt relief for Greece, warns INET grantee and University of Texas economist James K. Galbraith. That’s because, he believes, Greece’s debtors continue to demand unsustainable austerity measures as the price for bailout funds — measures the Greek government will, sooner or later, be forced to halt.

“A breakdown of the [Brussels] discussion would be the best outcome,” Galbraith says. “That would move some of the creditors a little bit more towards reality, perhaps. There’s no point in making more concessions to them. They just keep on asking for more. There’s no way to satisfy these people. They’re engaged in a land grab. They have a strategy to achieve that, but the time of reckoning will come sooner or later.”

The Brussels meeting follows a day of dramatic protests by thousands of citizens in Athens and Thessaloniki on Sunday, as Greece’s parliament passed a controversial new round of pension and tax reforms demanded by creditors.Monday’s meeting is the first in six years to focus on the issue of debt relief measures, which may be necessary to avoid a Greek default in July, when the country’s next major repayment to the International Monetary Fund (IMF) and the European Central Bank comes due. Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, has expressed hope that a deal can be reached later this month. And Greek Prime Minister Alexis Tsipras has said that the Brussels meeting is critical to achieving debt relief and breaking a vicious economic cycle.

But the creditors are divided on the issue, with the IMF favoring debt relief, while Germany leads opposition. Galbraith expects the IMF to capitulate. “The IMF is making noises,” he says, “but they are not going to have the cojones to stand up to the Germans.”
Galbraith, author of The End of Normal and professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, has been a close observer of the Greek crisis. His forthcoming book, Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe, will be published in June by Yale University Press. He discusses what is at stake and whether any chance of debt relief exists in the current climate. He believes that on the current path, a Greek default is inevitable, and with it a halt to unsustainable austerity measures.

To the extent that the government pursues the current policy, social instability is likely to escalate.

“There will be more resistance,” Galbraith warns. “It’s the only sensible thing. The Greek people are being maneuvered into a position where they cannot pay their mortgages and they are being dispossessed from their homes. For what? For debts that were incurred under previous governments for completely useless things where the benefits went to German construction companies and French arms firms. The notion that this debt should be paid is absurd.”

New research confirms that the vast majority of the bailout funds Greece is receiving are, in fact, being paid to existing creditors, with less than 5% going to Athens’ fiscal budget. Similar conclusions were reached in Pablo Garcia Bortz Institute working paper “The Greek “Rescue: Where Did the Money Go?”

Galbraith believes that the capitulation to the creditors’ terms in July 2015 by Tsipras, despite having been elected on a wave of anti-austerity protest, reduced Greece to a colony. “From that point forward, all policy has been dictated by the outside and the government is simply a colonial administration, nothing else.”

He does not foresee a change of course from Greece’s creditors. For that, he says, “There would have to be a general uprising through the south of Europe.”

 

8 Comments

  1. Seamus Padraig says

    That’s because, he believes, Greece’s debtors continue to demand unsustainable austerity measures as the price for bailout funds — measures the Greek government will, sooner or later, be forced to halt.

    CORRECTION: “… Greece’s creditors …”

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  2. Tsipras deserves utter contempt. The man is a Judas.

    Greece needs to leave the Euro and reestablish its own currency asap.

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  3. bevin says

    Correction: Should read
    “..The working people are being crucified in order that the rest of Europe, and in particular, any political parties thinking of following Syriza’s example and using an electoral mandate to extract concessions may be shown the error of attempting to defy their capitalist masters.”

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  4. The trouble was, the Greeks may have said Oxi, but they wanted to keep the euro. Maybe this was the only way Tsipras could convince them that default and Grexit was the lesser of two evils.

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  5. Tsipras is a traitor to Syriza and the Greek people. He sold them out for an offer of power. Now he understands just how little power the bankers have ceded to him, he complains? He should have listened to Varoufakis instead of the wormtongues. The only possible way forward for Greece now is simply to refuse to pay. Default and let the chips fall where they may. Default and do the world a favor.

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    • bevin says

      Absolutely correct. The curious thing is that Tsipras et al have never really believed their own anti-capitalist rhetoric. History clearly tells us that Greece is being treated exactly in accordance with the traditions of the ruling class: the working people are being crucified in order that the rest of Europe, and in particular, any political parties thinking of following Syriza’s example and using an electoral mandate to extract concessions.
      The Troika have nothing but contempt for the electorate and a particularly ingrained hatred of the Greek people who have a long record of resistance to dictatorship. Now they are being punished.
      At the same time the alternative of declaring independence from NATO, the IMF, the EU and the Euro (to which they have the opportunity of delivering a damaging, perhaps fatal blow) and throwing in their lot with Eurasia is obvious.
      Nobody expects that these debts, which are almost certainly odious by any definition, will ever be paid. That isn’t the point: a nation is being punished, thousands of lives are going to be lost, many already have been, children will die in childbirth, pensioners will starve, thousand will be driven from their homes. And all to frighten the rest of Europe and the world.
      As you say “Default and do the world a favour” a real and enduring service to the cause of humanity.

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    • Shelly says

      We don’t know what was threatened if Greece did default. Greece is not self-sufficient in food or medicine so the threats could have been pretty bad. Also the migrant problem could be worse.

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