Weisbrot, M. (2015) “Greece: ECB Kicks Syriza in the Face; Syriza Turns the Other Cheek“, The Huffington Post, 05 February.
On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.
We should be clear about what this means. The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made. It looks very much like a deliberate attempt to undermine the new government. They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to.
Clarity is important here because the European authorities, or the troika, as they are commonly called, plunged the eurozone into at least two additional years of unnecessary recession that began in 2011 because they were playing a similar game of chicken. The ECB, for its part, deliberately and repeatedly allowed the eurozone to go the brink of financial meltdown during this period. It was not because the financial markets had the power to collapse the euro when they pushed the yield on the 10-year sovereign bonds of Italy and Spain to unsustainable levels in the range of 7 percent. It was because the ECB deliberately allowed these market actors to create an existential crisis for the euro, in order to force concessions from the governments of Spain, Italy, Greece, Portugal, and Ireland.
These concessions were not just about paying off debt but also “structural reforms” that sought to remake the European welfare state in the weaker countries, including shrinking the size of the state; cutting spending on health care, pensions, and unemployment compensation; and changing labor laws that favored workers.
Relevant posts:
- Stearns, J. & Deen, M. (2015) “Greece Asks ECB to Keep Banks Afloat, Tsipras Pitches Deal“, Bloomberg Business, 01 February.
- Wolff, Guntram, Merler, Silvia, (2015), “The ECB has fired its bazooka” , Bruegel, 23 January.
- Jeffrey D. Sachs, (2015), “The ECB’s New Macroeconomic Realism”, Project Syndicate, 23 January.