Greece crisis could be a Sarajevo moment for the eurozone

 

Franz Ferdinand Archduke of Austria and his wife Sophie, Duchess of Hohenberg moments before they were assassinated in Sarajevo on 28 June 1914. Photograph: Design Pics Inc/Rex/Design Pics Inc/Rex


Larry Elliott in The Guardian

Sunday 28 June 2015 19.15 BST

 A hundred and one years ago on Sunday, gun shots rang out in a city in southern Europe. Few at the time paid much heed to the assassination of Archduke Franz Ferdinand and his wife as they drove through the streets of Sarajevo. Within six weeks, however, Europe was at war.

Make no mistake, the decision by Alexis Tsipras to hold a referendum on the bailout terms being demanded of his country has the potential to be a Sarajevo moment. The crisis is not just about whether there is soon to be a bank run in Greece, although there is certainly the threat of one. It is not just about whether the creditors overplayed their hand in the negotiations, although they did. It is about the future of the euro itself.

Greek banks to stay closed on Monday



There will be much talk in the next few days about how Greece can be quarantined. The three people who have been leading the negotiations for the troika - Christine Lagarde of the International Monetary Fund, Jean-Claude Juncker of the European commission and Mario Draghi of the European Central Bank - can still cling to the hope that Tsipras will lose the referendum next Sunday.

In those circumstances, the Syriza-led coalition would have little choice but to hold an election. The return of a government headed by, for example, the centre-right New Democracy, would open up the possibility that Athens would sue for peace on the terms demanded by the troika.

There is, however, no guarantee of this. The troika was certain last week that Tsipras would fold when presented with a final take-it-or-leave-it offer. They were wrong. The Fund, the ECB and the European commission made a fatal misjudgement and have now lost control of events.

The immediate decision for the ECB was whether to cut off emergency funding before the country’s bailout programme formally ends on Tuesday. Wisely, it has chosen not to make matters worse.

In recent weeks, the Greek banks have only been able to stay open because Draghi has provided funds to compensate for capital flight. Sunday night’s announcement of an emergency bank holiday and capital controls demonstrates just how critical the situation has become.

Germany strongly supports the immediate end to emergency liquidity assistance (ELA), arguing that taxpayers in the rest of Europe should not be further exposed to the risk of a Greek exit from the single currency. The ECB, however, has always been reluctant to take what would clearly be a political decision to escalate the pressure on the Greek banks, and has announced that it will continue providing funding at last week’s level.



Greece crisis: a disaster for Athens and a colossal failure for the EU



Even so, Greece now faces a week of turmoil. Tsipras bowed what seemed to be inevitable on Sunday by announcing controls to try to prevent Northern Rock-style queues outside the banks and - just as importantly - money leaving the country.

The Greek government will also be making contingency plans for exit from the single currency. Tsipras and Yannis Varoufakis, his finance minister, say that is not their wish or intention, but if the result of the referendum backs the government’s stance it is hard to see any alternative. Cyprus stayed in the euro after introducing capital controls, but it was done with the approval of other single currency members and involved knuckling down under an austerity programme.

In the meantime, the blame game has begun. The creditors say they offered Greece a deal that would have secured future financing in return for reforms and budget savings which would have hastened the country’s economic recovery. Lagarde has said there is now nothing on the table and that Greece should not expect the same terms to be available after the referendum.

Tsipras said the troika was proposing an “extortionate ultimatum” of “strict and humiliating austerity without end”. A spokesman for Varoufakis said the referendum meant the end to five years of “waterboarding”.

The stance taken by the troika has been wrong-headed but inevitable. Greece has seen its economy shrink by 25% in the past five years. A quarter of its population is unemployed. It has suffered a slump of Great Depression proportions, yet the troika has been demanding fresh tax increases that will suck demand from the economy, stifle growth and add to Greece’s debt burden.

If Greece were outside the euro, IMF advice would be different. The fund would be telling Greece to devalue its currency. It would be telling the country’s creditors that they would have to take a “haircut” in order to make Greece’s debts sustainable. It would then justify domestic austerity on the grounds that the benefits of the devaluation should not be frittered away in higher inflation.

The Greeks for whom all the talk means nothing – because they have nothing



This option, though, has not been made available to Greece. It is unable to devalue and European governments are resistant to the idea of a debt write-down. So the only way Greece can make itself more competitive is to cut costs, by reducing wages and pensions.

A fully fledged monetary union has the means to transfer resources from one region to another. This is what happens in the US or the UK, for example, with higher taxes in areas that are doing well being redistributed to areas with slower growth and higher unemployment.

The euro, however, was constructed along different lines. Countries were allowed to join even though it was clear they would struggle to compete with the better performing nations such as Germany. A stability and growth pact designed to ensure a common set of budget controls was a poor substitute for fiscal union. From the start, it was obvious that the only mechanism for a country that ran into severe difficulties would be harsh austerity. Greece is the result of what happens when politics is allowed to override economics.

If Greece leaves, the idea that the euro is irrevocable is broken. Any government that runs into difficulties in the future will have the Greek option of devaluation as an alternative to endless austerity. Just as importantly, the financial markets will know that, and will pile pressure on countries that look vulnerable. That’s why Greece represents an existential crisis for the eurozone.

It will be said in response that Greece is a small, insignificant country and that the single currency has much better defences than it had at the last moment of acute trouble in the summer of 2012. Diplomats in Europe’s capitals took very much the same view in late June 1914.

There’s method in Greece’s madness – it could pay off

Iain Martin in The Telegraph

In the upper reaches of the Euro elite, where leaders are forever driving up to summit meetings in shiny German cars and looking grave and self-important for the cameras, where smooth diplomats know that the way to get business done is to do it discreetly with fellow officials, there is no surer sign that a colleague has gone stark raving mad than him announcing that he is going to hold a referendum on matters European.

It is bad enough that David Cameron has decided to put Britain’s future in the EU to the voters. But at least the UK Prime Minister has given warning several years in advance and has enlisted the support of the British business establishment to win his vote in 2017. By contrast, the Greek leader, Alexis Tsipras, announced on Friday that he wants to hold a referendum in Greece on the eurozone crisis on July 5.

In the eyes of the Euro elite, this momentous decision made Mr Tsipras the instant winner of the European madman of the year competition. Several years ago, when his now forgotten predecessor in Athens attempted a similar manoeuvre, demanding a public vote, the Germans ordered Georges Papandreou not to be silly. Indeed, the then French president, Nicolas Sarkozy, told President Obama that the Greek leader was a “madman”. Truly, that was the pot calling the kettle noire.

Now, Mr Tsipras wants his own vote. What does he think he is doing? Does he realise that this is not how the eurozone and the European Union work? Who knows what will happen if Greek voters are asked whether they approve of the final offer of new terms from stricken Greece’s creditors. Goodness, the voters might say no. So exasperted were the other Eurogroup leaders that on Saturday they decided that the referendum move means their latest offer is void and Greece is on its own. It looks as though the referendum will go ahead regardless.

That fear of referendums on the part of EU leaders and officials is rooted in bitter experience, of course. The messy attempt to smuggle the integrationist Maastricht Treaty past European electorates in the early Nineties was followed by the long-running wrangle over the abandoned EU constitution and the Lisbon Treaty. Voters are awkward. Sometimes they do not do as they are told by the leaders and officials who do the deals. Why take the risk?

But Mr Tsipras is certainly not mad, or not in the sense that he has lost his marbles. Despite his Marxist beliefs and trainee demagogue antics, there is something rather compelling about the cunning way in which he has handled this crisis and declined to be railroaded by the corporatist EU powers-that-be, even though he has been slapped in the face (literally, last week) by the atrocious Jean Claude Juncker, the president of the EU commission. This is to say nothing of the ineffective behaviour of the over-rated German chancellor, Angela Merkel, cooed over by diplomats and the foreign policy community despite no one ever being able to name a single great achievement or convincing act of leadership in her career other than the knifing of her mentor Helmut Kohl.

But surely the real madmen here are not the Greek Marxists at all. The real madmen are those who created the euro, this cock-eyed construct, who thought political dreams and vanity could trump economic sense and cultural and national differences, by creating a currency union on a vast continent without the necessary safeguards.

Yet instead of facing these realities, and accepting that the EU model as currently constituted has had it, the Europhile leaders intone pompously about European Union values being agelessly sacrosanct. It is as though these men and women believe themselves to be functionaries of the Holy Roman Empire, rather than representatives of a modern botched-together political experiment that was only created in its latest form when German and French politicians misdiagnosed the consequences of the end of the Cold War as recently as 1989 and prescribed the euro.

This weekend, as those in the markets brace for the likelihood of Grexit, and a mammoth default on debts of more than 300 billion euros, it seems likely that Mr Tsipras has wanted Greece out of the eurozone all along, pretending throughout the negotiations that he is trying for an accommodation and debt relief when really he wanted to leave. That is what observers of Syriza, his party, believe.

But Mr Tsipras had a problem when he came to power. Although many Greek voters like his style, they also liked the euro because it meant membership of a supposedly democratic club that confers respectability. That is why he had to be seen to try for a deal, to create the illusion of good faith, so that he can say to the Greek electorate that while he did his best, the wicked architects of austerity – the central bankers and International Monetary Fund technocrats who want to make poor Greek pensioners (age: 57) homeless – would not see sense.

Now, Mr Tsipras may win either way. Either the creditors retreat in the next few days, because European financial institutions are exposed and the IMF is looking at a giant hole in its books, thus enabling Syriza to proclaim victory. Or, much more likely, Greece defaults on its debts and reintroduces the drachma as its currency against a backdrop of grievance and anti-German feeling that will serve the Greek Left well for generations to come.

The Greek people certainly won’t be winners, or at least not in the short term. On Saturday they were jogging to their banks in preparation for a full-blown bank run, in the expectation that the government will have to introduce capital controls, restricting the flow of money out of the country. If it does not do this, then the banks will have to close their doors. On Tuesday, Greece will start defaulting on the first chunk of 9.7 billion euros it owes the IMF this year. And that is all before the expected referendum on Sunday, which is a vote on a deal that eurozone finance ministers are declaring void already. What a mess.

Leaving will not be easy, contrary to the predications of British Eurosceptics, or at least not straight away. The experience of previous major defaults and hasty reorganisations suggests that it is extremely difficult to hold down inflation. It is also unlikely that the high-taxing socialist Mr Tsipras will introduce the capitalist policies and reforms that will attract inward investment and grow the economy.

At this late hour, in the final act of the Greek drama, enter David Cameron, like a man who arrives at a pub when the other customers and staff are administering the kiss of life to a regular who has collapsed on the floor next to the bar after consuming way too much ouzo.

Mr Cameron clears his throat and asks if someone wouldn’t mind awfully getting him and his British friends a pint. There is silence, until someone points out that they have their hands full at the moment.

In a similarly fraught atmosphere, Mr Cameron was given a few minutes to read out his proposals for reform to EU leaders last week as they grappled with Greece and the migrant crisis in the Mediterranean. His demands – on benefits and the promise of a post-dated cheque guaranteeing who knows what from the other countries after the referendum – are pathetically small.

There remains one fascinating other possibility, however, which may get the escapologist Mr Cameron off the hook in that style of his to which we have all become so accustomed. If Greece does leave and the effects are explosive, then it might – just might – finally persuade the Euro elite that their approach is bust, and that what is needed instead is a way for Europeans to trade and be friends without the architecture of an integrationist, incompetent, failed super-state.

Greece is a sideshow. The eurozone has failed, and Germans are its victims too

'This is what the noble European project is turning into: a grim march to the bottom. This isn’t about creating a deeper democracy, but deeper markets.' Photograph: Matt Kenyon

 Aditya Chakrabortty in The Guardian

Nearly every discussion of the Greek fiasco is based on a morality play. Call it Naughty Greece versus Noble Europe. Those troublesome Greeks never belonged in the euro, runs this story. Once inside, they got themselves into a big fat mess – and now it’s up to Europe to sort it all out.

Eurozone creditors raise hopes of Greek bailout deal

Read more

Those are the basics all Wise Folk agree on. Then those on the right go on to say feckless Greece must either accept Europe’s deal or get out of the single currency. Or if more liberal, they hem and haw, cough and splutter, before calling for Europe to show a little more charity to its southern basketcase. Whatever their solution, the Wise Folk agree on the problem: it’s not Brussels that’s at fault, it’s Athens. Oh, those turbulent Greeks! That’s the attitude you smell when the IMF’s Christine Lagarde decries the Syriza government for not being “adult” enough. That’s what licenses the German press to portray Greece’s finance minister, Yanis Varoufakis, as needing “psychiatric help”.

There’s just one problem with this story: like most morality tales, it shatters upon contact with hard reality. Athens is merely the worst outbreak of a much bigger disease within the euro project. Because the single currency isn’t working for ordinary Europeans, from the Ruhr valley to Rome.

On saying this, I don’t close my eyes to the endemic corruption and tax-dodging in Greece (nor indeed, does the outsiders’ movement Syriza, which came to power campaigning against just these vices). Nor am I about to don Farage-ist chalkstripes. My charge is much simpler: the euro project is not only failing to deliver on the promises of its originators, it’s doing the exact opposite – by eroding the living standards of ordinary Europeans. And as we’ll see, that’s true even for those living in the continent’s number one economy, Germany.

First, let’s remind ourselves of the noble pledges made for the euro project. Let’s play the grainy footage of Germany’s Helmut Schmidt and France’s Giscard d’Estaing, as they lay the foundations for Europe’s grand unifier. Most of all, let’s remind ourselves of what the true believers felt. Take this from Oskar Lafontaine, Germany’s minister of finance, on the very eve of the launch of the euro. He talked of “the vision of a united Europe, to be reached through the gradual convergence of living standards, the deepening of democracy, and the flowering of a truly European culture”.

 We could quote a thousand other such stanzas of euro-poetry, but that single line from Lafontaine shows how far the single-currency project has fallen. Instead of raising living standards across Europe, monetary union is pushing them downwards. Rather than deepening democracy, it is undermining it. As for “a truly European culture”, when German journalists accuse Greek ministers of “psychosis”, that mythic agora of nations is a long way off.

Of all these three charges, the first is most important – because it explains how the entire union is being undermined. To see what’s happened to the living standards of ordinary Europeans, turn to some extraordinary research published this year by Heiner Flassbeck, former chief economist at the United Nations Conference on Trade and Development, and Costas Lapavitsas, an economics professor at Soas University of London turned Syriza MP.

In Against the Troika, the German and the Greek publish one chart that explodes the idea that the euro has raised living standards. What they look at is unit labour costs – how much you need to pay staff to make one unit of output: a widget, say, or a bit of software. And they map labour costs across the eurozone from 1999 to 2013. What they find is that German workers have barely seen wages rise for the 14-year stretch. In the short life of the euro, working Germans have fared worse than the French, Austrians, Italians and many across southern Europe.

Yes, we’re talking about the same Germany: the mightiest economy on the continent, the one even David Cameron regards with envy. Yet the people working there and making the country more prosperous have seen barely any reward for their efforts. And this is the model for a continent.

Perhaps you have an image of Deutschland as being a nation of highly skilled, highly rewarded workers in gleaming factories. That workforce and its unions still exist – but it’s shrinking fast. What’s replacing it, according to Germany’s leading expert on inequality, Gerhard Bosch, are crap jobs. The low-wage workforce has shot up and is now almost at US levels, he reckons.

Don’t blame this on the euro, but on the slow decline of German unions, and the trend of business towards outsourcing to cheaper eastern Europe. What the single currency has done is make Germany’s low-wage problems the ruin of an entire continent.

Workers in France, Italy, Spain and the rest of the eurozone are now being undercut by the epic wage freeze going on in the giant country in the middle. Flassbeck and Lapavitsas describe this as Germany’s “beggar thy neighbour” policy – “but only after beggaring its own people”.

In the last century, the other countries in the eurozone could have become more competitive by devaluing their national currencies – just as the UK has done since the banking meltdown. But now they’re all part of the same club, the only post-crash solution has been to pay workers less.

That is expressly what the European commission, the European Central Bank and the IMF are telling Greece: make workers redundant, pay those still in a job much less, and slash pensions for the elderly. But it’s not just in Greece. Nearly every meeting of the Wise Folk in Brussels and Strasbourg comes up with the same communique for “reform” of the labour market and social-security entitlements across the continent: a not-so-coded call for attacking ordinary people’s living standards.

This is what the noble European project is turning into: a grim march to the bottom. This isn’t about creating a deeper democracy, but deeper markets – and the two are increasingly incompatible. Germany’s Angela Merkel has shown no compunction about meddling in the democratic affairs of other European countries – tacitly warning Greeks against voting for Syriza for instance, or forcing the Spanish socialist prime minister, José Luis Rodríguez Zapatero, to rip up the spending commitments that had won him an election.

The diplomatic beatings administered to Syriza since it came to power this year can only be seen as Europe trying to set an example to any Spanish voters who might be tempted to support its sister movement Podemos. Go too far left, runs the message, and you’ll get the same treatment.

Whatever the founding ideals of the eurozone, they don’t match up to the grim reality in 2015. This is Thatcher’s revolution, or Reagan’s – but now on a continental scale. And as then, it is accompanied by the idea that There Is No Alternative either to running an economy, or even to which kind of government voters get to choose.

The fact that this entire show is being brought in by agreeable-looking Wise Folk often claiming to be social democratic doesn’t render the project any nicer or gentler. It just lends the entire thing a nasty tang of hypocrisy.

Greek debt crisis is the Iraq War of finance

Guardians of financial stability are deliberately provoking a bank run and endangering Europe's system in their zeal to force Greece to its knees.

By Ambrose Evans-Pritchard in The Telegraph 6:29PM BST 19 Jun 2015  

Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.

The spectacle is astonishing. The European Central Bank, the EMU bail-out fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.

They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits - even if they degrade their own institutions in the process.

If we want to date the moment when the Atlantic liberal order lost its authority – and when the European Project ceased to be a motivating historic force – this may well be it. In a sense, the Greek crisis is the financial equivalent of the Iraq War, totemic for the Left, and for Souverainistes on the Right, and replete with its own “sexed up” dossiers.

Does anybody dispute that the ECB – via the Bank of Greece - is actively inciting a bank run in a country where it is also the banking regulator by issuing this report on Wednesday?

It warned of an "uncontrollable crisis" if there is no creditor deal, followed by soaring inflation, "an exponential rise in unemployment", and a "collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership".

The guardian of financial stability is consciously and deliberately accelerating a financial crisis in an EMU member state - with possible risks of pan-EMU and broader global contagion – as a negotiating tactic to force Greece to the table.

It did so days after premier Alexis Tsipras accused the creditors of "laying traps" in the negotiations and acting with a political motive. He more or less accused them of trying to destroy an elected government and bring about regime change by financial coercion.

I leave it to lawyers to decide whether this report is a prima facie violation of the ECB’s primary duty under the EU treaties. It is certainly unusual. The ECB has just had to increase emergency liquidity to the Greek banks by €1.8bn (enough to last to Monday night) to offset the damage from rising deposit flight.

In its report, the Bank of Greece claimed that failure to meet creditor demands would “most likely” lead to the country’s ejection from the European Union. Let us be clear about the meaning of this. It is not the expression of an opinion. It is tantamount to a threat by the ECB to throw the Greeks out of the EU if they resist.

This is not the first time that the ECB has strayed far from its mandate. It forced the Irish state to make good the claims of junior bondholders of Anglo-Irish Bank, saddling Irish taxpayers with extra debt equal to 20pc of GDP.

This was done purely in order to save the European banking system at a time when the ECB was refusing to do the job itself, betraying the primary task of a central bank to act as a lender of last resort.

It sent secret letters to the elected leaders of Spain and Italy in August 2011 demanding detailed changes to internal laws for which it had no mandate or technical competence, even meddling in neuralgic issues of labour law that had previously led to the assassination of two Italian officials by the Red Brigades. It demanded changes to the Spanish constitution.

When Italy’s Silvio Berlusconi balked, the ECB switched off bond purchases, driving 10-year yields to 7.5pc. He was forced from office in a back-room coup d’etat, albeit one legitimised by the ageing ex-Stalinist EU fanatic who then happened to be president of Italy.

Lest we forget, it parachuted in its vice-president – Lucas Papademos – to take over Greece when premier George Papandreou merely suggested that he might submit the EMU bail-out package to a referendum, a wise idea in retrospect. That makes two coups d’etat. Now Syriza fears they are angling for a third.

The creditor power structure has lost its way. The IMF is in confusion. It is enforcing a contractionary austerity policy in Greece – with no debt relief, exchange cushion, or offsetting investment - that has been discredited by its own elite research department as scientifically unsound.

The Fund’s culpability in this fiasco is by now well known. As I argued last week, its own internal documents show that the original bail-out in 2010 was designed to rescue the EMU banking system and monetary union at a time when it had no defences against contagion. Greece was sacrificed.

One should have thought that the IMF would wish to lower the political temperature, given that its own credibility and long-term survival are at stake. But no, Christine Lagarde has upped the political ante by stating that Greece will fall into arrears immediately if it misses a €1.6bn payment to the Fund on June 30.

In my view, this is a discretionary escalation. The normal procedure is to notify the IMF Board after 30 days. This period is a de facto grace period, and in a number of past cases the arrears were cleared up quietly during the interval before the matter ever reached the Board.

The IMF could have let this process run in the case of Greece. It has chosen not to do so, ostensibly on the grounds that the sums are unusually large.

Klaus Regling, head of the eurozone bail-out fund (EFSF), entered on cue to hint strongly that his organisation would trigger cross-default clauses on its Greek bonds – 45pc of the Greek package – even though there is no necessary reason why it should do so. It is an optional matter for the EFSF board.

He seems to be threatening an EFSF default, even though the Greeks themselves are not doing so, a remarkable state of affairs.

It is obvious what is happening. The creditors are acting in concert. Instead of stopping to reflect for one moment on the deeper wisdom of their strategy, they are doubling down mechanically, appearing to assume that terror tactics will cow the Greeks at the twelfth hour.

Personally, I am a Burkean conservative with free market views. Ideologically, Syriza is not my cup tea. Yet we Burkeans do like democracy – and we don’t care for monetary juntas – even if it leads to the election of a radical-Left government.

As it happens, Edmund Burke would have found the plans presented to the Eurogroup last night by finance minister Yanis Varoufakis to be rational, reasonable, fair, and proportionate.

They include a debt swap with ECB bonds coming due in July and August exchanged for bonds from the bail-out fund. They would have longer maturities and lower interest rates, reflecting the market borrowing cost of the creditors.

Syriza said from the outset that it was eager to work on market reforms with the OECD, the leading authority. It wants to team up with the International Labour Organisation on Scandinavian style flexi-security and labour reforms, a valid alternative to the German-style Hartz IV reforms that have impoverished the bottom fifth of German society and which no Left-wing movement can stomach.

It wished to push through a more radical overhaul of the Greek state that anything yet done under five years of Troika rule – and much has been done, to be fair.

As Mr Varoufakis told Die Zeit: “Why does a kilometer of freeway cost three times as much where we are as it does in Germany? Because we’re dealing with a system of cronyism and corruption. That’s what we have to tackle. But, instead, we’re debating pharmacy opening times."

The Troika pushed privatisation of profitable state assets at knock-down depression prices to private monopolies, to the benefit of an entrenched elite. To call that reforms invites a bitter cynicism.

The only reason that the Troika pushed this policy was in order to extract money. It was acting at a debt collector. “The reforms were a smokescreen. Whenever I tried talking about proposals, they were bored. I could see it in their body language," Mr Varoufakis told me.

The truth is that the creditor power structure never even looked at the Greek proposals. They never entertained the possibility of tearing up their own stale, discredited, legalistic, fatuous Troika script.

The decision was made from the outset to demand strict enforcement of the terms agreed in the original Memorandum, which even the last conservative pro-Troika government was unable to implement - regardless of whether it makes any sense, or actually increases the chance that Germany and other lenders will recoup their money.

At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.

At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.

We all know the argument. The EU is worried about political “moral hazard”, about what Podemos might achieve in Spain, or the eurosceptics in Italy, or the Front National in France, if Syriza is seen to buck the system and get away with it.

But do the proponents of this establishment view – and one hears it a lot – really think that Podemos can be defeated by crushing Syriza, or that they can discourage Marine Le Pen by violating the sovereignty and sensibilities of a nation?

Do they think that the EU’s ever-declining hold on the loyalty of Europe’s youth can be reversed by creating a martyr state on the Left? Do they not realize that this is their own Guatemala, the radical experiment of Jacobo Arbenz that was extinguished by the CIA in 1954, only to set off the Cuban revolution and thirty years of guerrilla warfare across Latin America? Don’t these lawyers – and yes they are almost all lawyers - ever look beyond their noses?

The Versailles victors assumed reflexively that they had the full weight of moral authority on their side when they imposed their Carthiginian settlement on a defeated Germany in 1919 and demanded the payment of debts that they themselves invented. History judged otherwise.

Perhaps the world's conspiracy theorists have been right all along

Alex Proud in The Telegraph
 
We used to laugh at conspiracy theorists, but from Fifa to banking scandals and the Iraq War, it seems they might have been on to something after all, says Alex Proud


'I want to believe': Mulder and Scully (David Duchovny and Gillian Anderson) in The X Files Photo: 20th Century Fox
 

Conspiracy theories used to be so easy.

You’d have your mate who, after a few beers, would tell you that the moon landings were faked or that the Illuminati controlled everything or that the US government was holding alien autopsies in Area 51. And you’d be able to dismiss this because it was all rubbish.

Look, you’d say, we have moon rock samples and pictures and we left laser reflectors on the surface and... basically you still don’t believe me but that’s because you’re mad and no proof on earth (or the moon) would satisfy you.

It’s true that there was always the big one which wasn’t quite so easily dismissed. This was the Kennedy assassination - but here you could be fairly sure that the whole thing was a terrible, impenetrable murky morass. You knew that some things never would be known (or would be released, partially redacted by the CIA, 200 years in the future). And you knew that whatever the truth was it was probably a bit dull compared to your mate’s flights of fantasy involving the KGB, the Mafia and the military-industrial complex. Besides, it all made for a lot of very entertaining films and books.

Photo: Reuters

This nice, cozy state of affairs lasted until the early 2000s. But then something changed. These days conspiracy theories don’t look so crazy and conspiracy theorists don’t look like crackpots. In fact, today’s conspiracy theory is tomorrow’s news headlines. It’s tempting, I suppose, to say we live in a golden age of conspiracy theories, although it’s only really golden for the architects of the conspiracies. From the Iraq war to Fifa to the banking crisis, the truth is not only out there, but it’s more outlandish than anything we could have made up.
 
Of course, our real-life conspiracies aren’t much like The X-Files – they’re disappointingly short on aliens and the supernatural. Rather, they’re more like John Le Carre books. Shady dealings by powerful people who want nothing more than to line their profits at the expense of others. The abuse of power. Crazy ideologues who try and create their own facts for fun and profit. Corporations supplanting governments via regulatory capture.

So, what are some of our biggest conspiracies?

The Iraq War

The most disgusting abuse of power in a generation and a moral quagmire that never ends. America is attacked by terrorists and so, declares war on a country that had nothing whatsoever to do with the attacks, while ignoring an oil rich ally which had everything to do with them. The justification for war is based on some witches’ brew of faulty intelligence, concocted intelligence and ignored good intelligence. Decent people are forced to lie on an international stage. All sensible advice is ignored and rabid neo-con draft dodgers hold sway on military matters. The UK joins this fool’s errand for no good reason. Blood is spilled and treasure is spent.

The result is a disaster that was predicted only by Middle Eastern experts, post-conflict planners and several million members of the public. Thousands of allied troops and hundreds of thousands of blameless Iraqis are killed, although plenty of companies and individuals benefit from the US dollars that were shipped out, literally, by the ton. More recently, Iraq, now in a far worse state than it ever was under any dictator, has become an incubator for more terrorists, which is a special kind of geopolitical irony lost entirely on the war’s supporters.

And yet, we can’t really bring ourselves to hold anyone accountable. Apportioning responsibility would be difficult, painful and inconvenient, so we shrug as the men behind all this enjoy their well-upholstered retirements despite being directly and personally responsible for hundreds of thousands of deaths and trillions of wasted dollars. And the slow drip, drip of revelations continues, largely ignored by the public, despite the horrendous costs which (in the UK) could have been spent on things like the NHS or properly equipping our armed forces.

Fifa

The conspiracy du jour. We always knew Fifa was shonky and bribey, but most of us thought the more outlandish claims were just that. Not so. As it turns out, Fifa is a giant corruption machine and it now looks like every World Cup in the last three decades, even the ones we were cool about, like South Africa, could have been fixes.

Photo: AFP

On the plus side, it seems that something may be done, but it’ll be far too late to help honest footballing nations who missed their moment in the sun. For those who say "it’s only a stupid sport", well, recently we’ve heard accusations of arms deals for votes involving... wait for it... Saudi Arabia. The Saudi connection makes me wonder if, soon, we’ll be looking a grand unified conspiracy theory which brings together lots of other conspiracy theories under one corrupt, grubby roof.

The banking crisis

A nice financial counterpoint to Iraq. Virtually destroy the western financial system in the name of greed. Get bailed out by the taxpayers who you’ve been ripping off. And then carry on as if nothing whatsoever has happened. No jail, no meaningful extra regulation, the idea of being too big to fail as much of a joke as it was in 2005. Not even an apology. In fact, since the crisis you caused, things have got much better for you – and worse for everyone else. Much like Iraq, no-one has been held responsible or even acknowledged any wrongdoing. Again, this is partially because it’s so complicated and hard – but mainly because those who caused the crisis are so well represented in the governments of the countries who bailed them out. Oh, and while we’re at it, the banks played a part in the Fifa scandal. As conspiracy theorists will tell you, everything is connected.

Paedophiles

This one seems like a particularly dark and grisly thriller. At first it was just a few rubbish light entertainers. Then it was a lot more entertainers. Then we had people muttering about the political establishment – and others counter-muttering don’t be ridiculous, that’s a conspiracy theory. But it wasn’t. Now,it’s a slow-motion train crash and an endless series of glacial government inquiries. The conspiracy theorists point out that a lot of real stuff only seems to come out after the alleged perpetrators are dead or so senile it no longer matters. It’s hard to disagree with them. It’s also hard to imagine what kind of person would be so in thrall to power that they’d cover up child abuse.

And the rest

Where do you start? We could look at the EU and pick anything from its rarely signed-off accounts to the giant sham that let Greece join the Euro in the first place. We could look at UK defence procurement – and how we get so much less bang for our buck than France. We could peer at the cloying, incestuous relationship between the UK’s political class and its media moguls and how our leaders still fawn over a man whose poisonous control over so much of our media dates back to dodgy deal in 1981 that was denied for 30 years. We could look at the NSA and its intimate/ bullying relationship with tech companies. And we could go on and on and on.

But actually what we should be thinking is that a lot of this is what happens what you dismantle regulatory frameworks. This is what happens when you let money run riot and you allow industries to police themselves. This is what happens when the rich and powerful are endlessly granted special privileges, celebrated and permitted or even encouraged to place themselves above the law. And this is what happens when ordinary people feel bored by and excluded from politics, largely because their voices matter so little for the reasons above. Effectively, we are all living in Italy under Silvio Berlusconi. What’s the point in anything?

But actually, there is some hope. While the number of rich and powerful people who think they can get away with anything has undoubtedly grown, technology has made leaking much easier. Wikileaks may not be perfect, but it’s a lot better than no leaks at all. The other thing that gives me succour is the public’s view of the bankers. We still hate them, which is absolutely as it should be. And slowly this contempt is starting to hurt the masters of the universe. It’s notable that, recently, banking has started tumbling down the down the list of desirable careers. So, I suppose the solution is simple: we need more regulation, we need more transparency and we need more public shame and disgust. We might even get the last two; I’m less hopeful about the first.

In the X-Files, Fox Mulder’s famous catchphrase was, “I want to believe” but that’s because the conspiracy theories he dealt with were rather good fun. Ours, by contrast, tend to involve an endless procession of wealthy old men abusing their power. So I don’t want to believe any more. I want my kids to grow up in a world where conspiracy theories are something you laugh at.

Greek defiance mounts as Alexis Tsipras turns to Russia and China

Ambrose Evans Pritchard in The Telegraph

Two months of EU bluster and reproof have failed to cow Greece. It is becoming clear that Europe’s creditor powers have misjudged the nature of the Greek crisis and can no longer avoid facing the Morton’s Fork in front of them.

Any deal that goes far enough to assuage Greece’s justly-aggrieved people must automatically blow apart the austerity settlement already fraying in the rest of southern Europe. The necessary concessions would embolden populist defiance in Spain, Portugal and Italy, and bring German euroscepticism to the boil.

Emotional consent for monetary union is ebbing dangerously in Bavaria and most of eastern Germany, even if formulaic surveys do not fully catch the strength of the undercurrents. 

This week's resignation of Bavarian MP Peter Gauweiler over Greece’s bail-out extension can, of course, be over-played. He has long been a foe of EMU. But his protest is unquestionably a warning shot for Angela Merkel's political family.

Mr Gauweiler was made vice-chairman of Bavaria's Social Christians (CSU) in 2013 for the express purpose of shoring up the party's eurosceptic wing and heading off threats from the anti-euro Alternative fur Deutschland (AfD).

Yet if the EMU powers persist mechanically with their stale demands - even reverting to terms that the previous pro-EMU government in Athens rejected in December - they risk setting off a political chain-reaction that can only eviscerate the EU Project as a motivating ideology in Europe.

Jean-Claude Juncker, the European Commission’s chief, understands the risk perfectly, warning anybody who will listen that Grexit would lead to an “irreparable loss of global prestige for the whole EU” and crystallize Europe’s final fall from grace.

When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken.

Alexis Tsipras leads the first radical-Leftist government elected in Europe since the Second World War. His Syriza movement is, in a sense, totemic for the European Left, even if sympathisers despair over its chaotic twists and turns. As such, it is a litmus test of whether progressives can pursue anything resembling an autonomous economic policy within EMU.

There are faint echoes of what happened to the elected government of Jacobo Arbenz in Guatemala, a litmus test for the Latin American Left in its day. His experiment in land reform was famously snuffed out by a CIA coup in 1954, with lasting consequences. It was the moment of epiphany for Che Guevara (below), then working as a volunteer doctor in the country.

A generation of students from Cuba to Argentina drew the conclusion that the US would never let the democratic Left hold power, and therefore that power must be seized by revolutionary force.

We live in gentler times today, yet any decision to eject Greece and its Syriza rebels from the euro by cutting off liquidity to the Greek banking system would amount to the same thing, since the EU authorities do not have a credible justification or a treaty basis for acting in such a way. Rebuking Syriza for lack of “reform” sticks in the craw, given the way the EU-IMF Troika winked at privatisation deals that violated the EU’s own competition rules, and chiefly enriched a politically-connected elite.

Forced Grexit would entrench a pervasive suspicion that EU bodies are ultimately agents of creditor enforcement. It would expose the Project’s post-war creed of solidarity as so much humbug.

Willem Buiter, Citigroup’s chief economist, warns that Greece faces an “economic show of horrors” if it returns to the drachma, but it will not be a pleasant affair for Europe either. “Monetary union is meant to be unbreakable and irrevocable. If it is broken, and if it is revoked, the question will arise over which country is next,” he said.

“People have tried to make Greece into a uniquely eccentric member of the eurozone, accusing them of not doing this or not doing that, but a number of countries share the same weaknesses. You think the Greek economy is far too closed? Welcome to Portugal. You think there is little social capital in Greece, and no trust between the government and citizens? Welcome to southern Europe,” he said.

Greece could not plausibly remain in Nato if ejected from EMU in acrimonious circumstances. It would drift into the Russian orbit, where Hungary’s Viktor Orban already lies. The southeastern flank of Europe’s security system would fall apart.

Rightly or wrongly, Mr Tsipras calculates that the EU powers cannot allow any of this to happen, and therefore that their bluff can be called. “We are seeking an honest compromise, but don't expect an unconditional agreement from us," he told the Greek parliament this week.

If it were not for the fact that a sovereign default on €330bn of debts – bail-out loans and Target2 liabilities within the ECB system – would hurt taxpayers in fellow Club Med states that are also in distress, most Syriza deputies would almost relish the chance to detonate this neutron bomb.

Mr Tsipras is now playing the Russian card with an icy ruthlessness, more or less threatening to veto fresh EU measures against the Kremlin as the old set expires. “We disagree with sanctions. The new European security architecture must include Russia,” he told the TASS news agency.

He offered to turn Greece into a strategic bridge, linking the two Orthodox nations. “Russian-Greek relations have very deep roots in history,” he said, hitting all the right notes before his trip to Moscow next week.

The Kremlin has its own troubles as Russian companies struggle to meet redemptions on $630bn of dollar debt, forcing them to seek help from state’s reserve funds. Russia’s foreign reserves are still $360bn – down from $498bn a year ago – but the disposable sum is far less given a raft of implicit commitments. Even so, President Vladimir Putin must be sorely tempted to take a strategic punt on Greece, given the prize at hand.

Panagiotis Lafazanis, Greece’s energy minister and head of Syriza’s Left Platform, was in Moscow this week meeting Gazprom officials. He voiced a “keen interest” in the Kremlin’s new pipeline plan though Turkey, known as "Turkish Stream".

Operating in parallel, Greece’s deputy premier, Yannis Drakasakis, vowed to throw open the Port of Piraeus to China’s shipping group Cosco, giving it priority in a joint-venture with the Greek state’s remaining 67pc stake in the ports. On cue, China has bought €100m of Greek T-bills, helping to plug a funding shortfall as the ECB orders Greek banks to step back.

One might righteously protest at what amounts to open blackmail by Mr Tsipras, deeming such conduct to be a primary violation of EU club rules. Yet this is to ignore what has been done to Greece over the past four years, and why the Greek people are so angry.

Leaked IMF minutes from 2010 confirm what Syriza has always argued: the country was already bankrupt and needed debt relief rather than new loans. This was overruled in order to save the euro and to save Europe’s banking system at a time when EMU had no defences against contagion.

^{Greek prime minister Alexis Tsipras and finance minister Yanis Varoufakis}

Finance minister Yanis Varoufakis rightly calls it “a cynical transfer of private losses from the banks’ books onto the shoulders of Greece’s most vulnerable citizens”. A small fraction of the €240bn of loans remained in the Greek economy. Some 90pc was rotated back to banks and financial creditors. The damage was compounded by austerity overkill. The economy contracted so violently that the debt-ratio rocketed instead of coming down, defeating the purpose.

India’s member on the IMF board warned that such policies could not work without offsetting monetary stimulus. "Even if, arguably, the programme is successfully implemented, it could trigger a deflationary spiral of falling prices, falling employment and falling fiscal revenues that could eventually undermine the programme itself.” He was right in every detail.

Marc Chandler, from Brown Brothers Harriman, says the liabilities incurred – pushing Greece’s debt to 180pc of GDP - almost fit the definition of “odious debt” under international law. “The Greek people have not been bailed out. The economy has contracted by a quarter. With deflation, nominal growth has collapsed and continues to contract,” he said.

The Greeks know this. They have been living it for five years, victims of the worst slump endured by any industrial state in 80 years, and worse than European states in the Great Depression. The EMU creditors have yet to acknowledge in any way that Greece was sacrificed to save monetary union in the white heat of the crisis, and therefore that it merits a special duty of care. Once you start to see events through Greek eyes – rather than through the eyes of the north European media and the Brussels press corps - the drama takes on a different character.

It is this clash of two entirely different and conflicting narratives that makes the crisis so intractable. Mr Tsipras told his own inner circle privately before his election in January that if pushed to the wall by the EMU creditor powers, he would tell them “to do their worst”, bringing the whole temple crashing down on their heads. Everything he has done since suggests that he may just mean it.

Germany faces impossible choice as Greek, Spanish and Italian austerity revolt spreads

Ambrose Evans-Pritchard in The Telegraph

The political centre across southern Europe is disintegrating. Establishment parties of centre-left and centre-right - La Casta, as they say in Spain - have successively immolated themselves enforcing EMU debt-deflation.

Spain's neo-Bolivarian Podemos party refuses to fade. It has endured crippling internal rifts. It has shrugged off hostile press coverage over financial ties to Venezuela. Nothing sticks.

The insurrectionists who came from nowhere last year - with Trotskyist roots and more radical views than those of Syriza in Greece - are pulling further ahead in the polls. The latest Metroscopia survey gave Podemos 28pc. The ruling conservatives have dropped to 21pc.

The once-great PSOE - Spanish Workers Socialist Party - has fallen to 18pc and risks fading away like the Dutch Labour Party, or the French Socialists, or Greece's Pasok. You can defend EMU policies, or you can defend your political base, but you cannot do both.

As matters stand, Podemos is on track to win the Spanish elections in November on a platform calling for the cancellation of "unjust debt", a reversal of labour reforms, public control over energy, the banks, and the commanding heights of the economy, and withdrawal from Nato. 

Europe's policy elites can rail angrily at the folly of these plans if they wish, but they must answer why ex-Trotskyists threatening to dismantle market capitalism are taking a major EMU state by storm. It is what happens when 5.46m people lack jobs, when 2m households still have no earned income, and when youth unemployment is still running at 51.4pc, and home prices are down 42pc, six years into a depression.

It is pointless protesting that Spain's economy is turning the corner, a contested claim in any case. There comes a point when a society breaks and stops believing anything its leaders say.

The EU elites themselves have run their currency experiment into the ground by imposing synchronized monetary, fiscal, and banking contraction on the southern half of EMU, in defiance of known economic science and the lessons of the 1930s. It is they who pushed the eurozone into deflation, and thereby pushed the debtor states into accelerating compound-interest traps.

It is they who deployed the EMU policy machinery to uphold the interest of creditors, refusing to acknowledge that the root cause of Europe's crisis was a flood excess capital flows into vulnerable economies. It is they who prevented a US-style recovery from the financial crisis, and they should not be surprised that such historic errors are coming back to haunt.

The revolt in Italy has different contours but is just as dangerous for Brussels. Italians may not wish to leave the euro but political consent for the project but broken down. All three opposition parties are now anti-euro in one way or another. Beppe Grillo's Five Star movement - with 108 seats in parliament - is openly calling for a return to the lira.

Mr Grillo proclaims that Syriza is carrying the torch for all the long-suffering peoples of southern Europe, as it is in a sense.

"What’s happening to Greece today, will be happening to Italy tomorrow. Sooner or later, default is coming," he said.

Premier Matteo Renzi staked everthing on a recovery that has yet to happen. He is running out of political time. Deflation is overwhelming the fiscal gains from austerity. Italy's public debt has jumped from 116pc to 133pc of GDP in three years. The youth jobless rate is 44pc and still rising. Italian GDP has fallen 10pc in six years, and by 15pc in the Mezzogiorno. Italy's industrial production has dropped back to the levels of 1980.

The leaders of Spain and Italy know that their own populists at home will seize on any concessions to Syriza over austerity or debt relief as proof that Brussels yields only to defiance. They have a very strong incentive to make Greece suffer, even if it means a cataclysmic rupture and a Greek ejection from the euro.

Yet to act on this political impulse risks destroying the European Project. Europe's Left would nurture a black legend for a hundred years if the first radical socialist government of modern times was crushed and forced into bankruptcy by Frankfurt bankers - acting at the legal boundaries of their authority, or beyond - choosing to switch off liquidity support for the Greek financial system.

It would throw the Balkans into turmoil and probably shatter the security structure of the Eastern Mediterranean. It is easy to imagine a chain of events where an embittered Greece pulled out of Nato and turned to Russia, paralysing EU foreign policy in a self-feeding cycle of animosity that would ultimately force Greece out of the union altogether.

The charisma of the EU - using the Greek meaning - would drain away if such traumatic events were allowed to unfold, and all because a country of 11m people wanted to cut its primary budget surplus to 1.5pc from 4.5pc of GDP and shake a discredited Troika off its back, for that is what it comes down to.

One is tempted to cite Jacques Delors' famous comment that "Europe is like a riding bicycle: you stop pedalling and you fall off" but that hardly captures the drama of what amounts to civil war in a union built on a self-conscious ideology of solidarity.

"The euro is fragile. It is like a house of cards. If you pull away the Greek card, they all come down,” warned Greece's finance minister Yanis Varoufakis.

“Do we really want Europe to break apart? Anybody who is tempted to think it possible to amputate Greece strategically from Europe should be careful. It is very dangerous. Who would be hit after us? Portugal?" he said.

George Osborne clearly agrees. The worries have been serious enough to prompt a one-hour Cobra security meeting. "The risks of a miscalculation or a misstep leading to a very bad outcome are growing,” said the Chancellor.

Currency guru Barry Eichengreen - the world's leading expert on the collapse of the Gold Standard in 1931 - thinks Grexit might be impossible to control. "It would be Lehman Brothers squared,” he said.

This is not the view in Germany, at least not yet. The IW and ZEW institutes both argue that Europe can safely withstand contagion now that it has a rescue machinery and banking union in place, and must not give in to "blackmail".

Such is the 'moral hazard' view of the world, the reflex that led to the Lehman collapse in 2008. "If we knew then what we know now, we wouldn't have done it," the then-US treasury secretary Tim Geithner told EMU leaders in early 2011, the first time they were tempted to eject Greece.

The fond hope is that the European Central Bank can and will smooth over any turbulence in Portugal, Italy and Spain by mopping up their bonds, now that quantitative easing is on the way. Yet the losses suffered from a Greek default would surely ignite a political firestorm in Germany.

Bild Zeitung devoted two pages this morning to warnings that Grexit would cost Germany €63bn, or much more once the Bundesbank's Target2 payments though the ECB system are included. The unpleasant discovery that Germany's Target2 exposure can in fact go up in smoke - despite long assurances that this could never happen - might make it untenable to continue such support.

It is unfair to pick on Portugal but its public and private debts are 380pc of GDP - the highest in Europe and higher than those of Greece - making is acutely vulnerable to toxic effects of deflation on debt dynamics.

Portugal's net international investment position (NIIP) - the best underlying indicator of solvency - has reached minus 112pc of GDP. Public debt has jumped from 111pc to 125pc of GDP in three years. The fiscal deficit is still 5pc. The country's ranking in global competitiveness is close to that of Greece.

"The situation in Portugal is very different," says Paulo Portas, the deputy premier. Sadly it is not. Once you violate the sanctity of monetary union and reduce EMU to a fixed-exchange system, the illusion that Portugal is out of the woods may not last long. Markets will test it.

Only two people can now stop the coming train-wreck. Chancellor Angela Merkel and her finance minister Wolfgang Schauble, a man who masks his passion for the EU cause behind an irascible front.

Syriza have made a strategic blunder by turning their struggle into a fight with Germany, demanding Nazi war reparations, and toying with the Russian card at the very moment when Mrs Merkel is locked in make-or-break talks on Ukraine with Vladimir Putin.

Mr Varoufakis is trying to limit the damage, praising Mrs Merkel as the "most astute politician" in Europe, and Mr Schauble as the "only European politician with intellectual substance" - a wounding formulation for the others. He has called on Germany to cast off self-doubt and assume its roll as Europe's benevolent hegemon, almost as if he were evoking the glory days of the Holy Roman Empire when pious German emperors stood as guarantors for Christendom.

This is the only pitch that will work. Angela Merkel has risen above her narrow East German outlook and her fiscal platitudes of the early crisis to emerge as the soul-searching Godmother of Europe and the last credible defender of its unity. But even Mrs Merkel can be pushed too far.

Victory in Greece

Tariq Ali on Syriza's victory in the Greek elections

Syriza can transform the EU from within – if Europe will let it

 

Syriza’s anti-austerity programme is more sensible than radical, and what Greece needs. But the EU is far from convinced
 

• 
• • Costas Lapavitsas
  • theguardian.com, Monday 29 December 2014 15.06 GMT

Presidential guards in front of the Greek parliament. Photograph: Kostas Tsironis/AP

The Greek parliament has failed to elect a new president and the country’s constitution dictates that there should now be parliamentary elections. These will be critical for Greece and also important for Europe. A victory for Syriza, the main leftwing party, would offer hope that Europe might, at last, begin to move away from austerity policies. But there are also grave risks for Greece and the European left.

The rise of Syriza is a result of the adjustment programme imposed on Greece in 2010. The troika of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) provided huge bailout loans, with the cost of unprecedented cuts in public expenditure, tax increases and a collapse in wages. It was a standard, if extreme, austerity package, with one vital difference: austerity could not be softened by devaluing the currency as, for instance, had happened in the Asian crisis of 1997-98. Greek membership of the euro had closed all escape routes.

Brutal austerity succeeded in stabilising Greece and keeping it in the economic and monetary union by destroying its economy and society. The budget deficit has been drastically reduced, the current account deficit has turned into a surplus and the prospect of default on foreign debt has receded. But GDP has contracted by 25%, unemployment has shot above 25%, real wages have fallen by 30% and industrial output has declined by 35%. The human cost has been immeasurable, amounting to a silent humanitarian crisis. Homelessness has rocketed, primary healthcare has collapsed, soup kitchens have multiplied and child mortality has increased.

Since the summer of 2014, the depression has been drawing to a close, helped by the strong performance of the tourist sector. Yet, the damage from troika policies is so severe that growth prospects are appalling. The weakness is manifest in foreign trade, which the IMF expected to act as the “engine of growth”. In 2014, Greek exports will probably contract, while imports began to rise as soon as the depression showed signs of ending. This is a deeply dysfunctional economy.

In the midst of this catastrophe, the troika is insisting on further austerity to achieve massive primary budget surpluses of 3% in 2015, 4.5% in 2016 and even more in future years. Its purpose is to service the enormous foreign debt, which has risen to 175% of GDP from about 130% in 2009. Astonishingly, the IMF still expects Greece to register average growth of 3.4% during the next five years – provided, of course, that it goes full speed ahead with privatisation, deregulation of labour and market liberalisation. The troika has truly embraced the economics of the absurd.

In 2010-11, the Greek people actively opposed the disastrous policies of the troika and its domestic allies, but failed to stop them. After 2012, however, as unemployment and poverty escalated, it became difficult to organise popular protest. Still, exhaustion with troika policies is so great that voters have turned in droves to the left, in the hope that Syriza will offer a better future.

Syriza promises first to achieve a substantial write-off of Greek debt and, second, to lift austerity by aiming for balanced budgets, instead of the surpluses demanded by the troika. It will reconnect families to the electricity network, provide food relief and shelter the homeless. It will take immediate action to reduce unemployment through public programmes. It is committed to lowering the enormous tax burden and to boosting public investment in an effort to accelerate growth.

There is nothing radical, much less revolutionary, in these policies. They represent modest common sense and would open a fresh path for other European countries. After all, Syriza has repeatedly declared its intention to keep the country within the economic and monetary union, and to avoid unilateral actions. There is little doubt that its leaders are committed Europeanists who truly believe that they could help transform the EU from within.

The trouble is that the EU is far from amenable to Syriza’s ideas. Germany’s exporters and banks have benefitted substantially from the euro and have no incentive to abandon austerity. Berlin has its plate full anyway as the eurozone is exhibiting renewed weakness, with France and Italy on the ropes. There is also Mario Draghi at the ECB,rambling on about quantitative easing, a policy that Berlin detests. The last thing that Germany would welcome would be Syriza and its programme.

A scaremongering campaign is likely in the coming weeks to deter Greeks from voting for the leftwing party. Should the campaign fail, a Syriza government can expect hostility from the EU, which is not short of weapons. Syriza’s programme is sensible and modest, but lacks secure funding. Greece also needs substantial finance to service its debts in 2015, perhaps up to €20bn. There are some debt repayments in the spring that might be manageable, but further repayments – €6.7bn – must be made in July-August, which will need fresh funding from abroad. And, needless to say, Greek banking would be rapidly asphyxiated if the ECB stopped providing liquidity.

A Syriza government will probably face an ultimatum to capitulate, perhaps by being offered some watered-down version of austerity. This would be a disaster for Greece and a major defeat for opponents of austerity in Europe. It is vital that Syriza wins and applies its programme without flinching, helped by international support. The battle lines are forming in Greece.