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Wednesday, May 9, 2012

A Rigid Refusal to Renegotiate: Blaming the Greeks

As Greek party leaders struggled to put together a government in May 2012 after a splintering election, a major (and contentious) issue was whether to demand a renegotiation of the bailout agreement. Alexis Tsipras, leader of the Coalition of the Radical Left known as Syriza (which made large gains in the election), was declaring the agreement null and void given the mandate implied by the gains made on the far right and left (both being opposed to the austerity program). The New York Times reports that Tsipras believed he “had changed the debate to the point that the formerly dominant parties that had signed the loan agreement were . . .  indicating they might agree to demand it be renegotiated.” Tsipras’s statements were enough to prompt a firm Nein! from Angela Merkel in Berlin and a related “tightening of the screws” from the committee of the European Financial Stability Facility.

The full essay is at Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Tuesday, May 8, 2012

Anti-Austerity in Greek Government

The Socialists and then the New Democracy Party told Greeks that sacrifices were necessary to avert default on the state’s debt. This position came at a high political cost on May 6, 2012, when both parties lost seats in the state’s legislative election. “The established parties collapsed — they had too much pressure from Berlin and Brussels and the I.M.F.,” said Nikos Xydakis, an newspaper editor and a political commentator, referring to Greece’s foreign lenders. In other words, the leaders of the two mainstream Greek parties sold out their compatriots, having caved in to ultimatums from Merkel operating at the E.U. level. “In a meeting with President Karolos Papoulias, the leader of the leftist party, Alexis Tsipras, ridiculed the leaders of the two main parties whose coalition lost its majority in the parliamentary elections.” Tsipras added that his party would not be forming a government with either party. The New Democracy Party had been unable to form a government in the wake of the election, so it was then Tsipras’ turn to try.

                           Alexis Tsipras  and Greek President Papoulias   NYT/Kostas Tsironis
The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Monday, May 7, 2012

Merkel’s Fiscal Box

According to the Huffington Post, Germany was ruling out any substantive shift in its approach to Europe's debt crisis despite a rising chorus of opposition to Berlin's austerity policies that reached a crescendo in the elections in Greece and France on May 6, 2012. On the following day, Merkel “rejected the notion that Europe was on the brink of a major policy shift after Socialist Francois Hollande defeated her fellow conservative Nicolas Sarkozy and Greek voters punished ruling parties who slashed spending to secure a foreign bailout. . . . Merkel herself made clear that, while there was scope to discuss tactics, the overall strategy EU leaders committed to by agreeing a compact on fiscal consolidation was ‘not negotiable’.” That seems a bit presumptuous, considering that the “fiscal pact” had yet to be ratified in enough of the states to go into effect.

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Fuld’s Arrogance at Lehman: Systemic Risk

Documents released in May 2012 regarding Dick Fuld at Lehman Brothers prove that he was aware of the high risk involved in holding so much real estate (and related security derivatives). According to the Huffington Post, this means definitively that “the ‘forces-out-of- our-control’ argument we hear from Wall Street leaders is [self-serving] bunk. It is the ill-advised behavior of one banker after another, day in and day out, that leads to the sort of devastating financial crisis we are only now emerging from.”

The full essay is in Essays on the Financial Crisis, available in print and as an ebook at Amazon.

Sunday, May 6, 2012

Europeans Vote against Austerity

On May 6, 2012, elections took place in six E.U. states. The most significant in terms of the debt crisis are those of France and Greece. In France, Francois Hollande narrowly beat Nicolas Sarkozy. According to the New York Times, Sarkozy “is the latest of a string of European incumbents, from both the left and the right, to lose in a larger popular revolt against budget-cutting and tax increased during a time of recession and high unemployment.” Hollande said “he intends to give ‘a new direction to Europe,’ demanding that a European Union [amendment] limiting debt be expanded to include measures to produce economic growth.” After midnight, Hollande spoke against austerity to a crowd gathered at the Bastille. To be sure, an anti-Sarkozy-arrogance vote doubtlessly benefitted Hollande. This makes it difficult to treat this (or any other) election as a mandate policywise. Even so, the center of gravity on austerity at the E.U. level had shifted, given the important role of state officials there.
                 François Hollande addressed supporters in Tulle, France.      Philippe Desmazes/Agence France-Presse

Meanwhile, voters in Greece were shifting the political landscape in that state, “bolstering the far left and neo-Nazi right in a wave of protest against the dominant political parties that they blame for the country’s economic collapse.” In other words, the two main parties that had agreed to the austerity/bailout agreement lost ground to other parties—essentially splintering the vote. According to the New York Times, an exit poll “indicated that center-right New Democracy party was in first place with 19 to 20.5 percent of the vote, much less than the 34 percent it won in 2009. But in a major shift, the Socialists, who dominated for decades, won 44 percent of the vote in 2009 and were in power when Greece asked for foreign aid in 2010, appeared to have 13 to 14 percent of the vote, putting them behind the Coalition of the Radical Left, called Syriza, which opposes Greece’s agreement with its foreign lenders. Syriza appeared to be drawing 15.5 to 17 percent of the vote.” New Democracy and the Socialist Party had agreed to the austerity, and they paid a price at the polls.
The shifts in both states undoubtedly provided federal officials (including state officials active at the federal level) with a message: more and more E.U. citizens were opposing the austerity-only approach. Lest it be concluded that Hollande and the Greek legislature trigger a change of E.U. policy, incumbents including Angela Merkel were still a force to be reckoned with. Generally speaking, actual political change occurs in graduate steps rather than all at once after an election. The status quo is never entirely defeated by a few replacements; it takes several elections for a sea-change to gain the upper hand in governmental channels.
Even so, May 6, 2012 suggests that the forces of such change were gaining.  Even if it would take more elections for the austerity-emphasis to be changed, it was already clear that a majority of the people were willing to vote as if they were opposed to the approach.  In relying so much on austerity in their agreement with Greece, state leaders making policy at the E.U. level had gone beyond the center of gravity. In a representative democracy, doing what is right or in the people’s best interest at the expense of popular anger or disapproval has value. However, this leash does not extend very long and it must be tailored to the amount of time until the next election. This is both a disadvantage and advantage of representative democracy: officials cannot get too far from their basis in the popular center of gravity, even if a crisis warrants a long-term solution that is generally unpopular at the grass-roots level.
Steve Erlanger and Nicola Clark, “Hollande Ousts Sarkozy in French Presidential Election,” The New York Times, May 6, 2012. 
Rachel Donadio and Nici Kitsantonis, “Greek Voters Punish 2 Main Parties for Economic Collapse,” The New York Times, May 6, 2012.