Mark Weisbrot, Destroying the Greek economy in order to save it – European authorities are using dirty tactics to bring Greece to heel, Al Jazeera America, 30 March 2015.
There is a tense standoff right now between the Greek government and the so-called troika — the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). ECB President Mario Draghi went so far this week as to deny that his institution is trying to blackmail the Greek government.
But blackmail is actually an understatement of what the troika is doing to Greece. It has become increasingly clear that it is trying to harm the Greek economy in order to increase pressure on the new Greek government to agree to its demands.
The first sign that this was the European authorities’ strategy came on Feb. 4 — just 10 days after the Syriza government was elected — when the ECB cut off the main source of financing for Greek banks. This move was clearly made in bad faith, since there was no bureaucratic or other reason to do this; it was more than three weeks before the deadline for the decision. Predictably, the cutoff spurred a huge outflow of capital from the Greek banking system, destabilizing the economy and sending financial markets plummeting. More intimidation followed, including a slightly veiled threat that emergency liquidity assistance, Greece’s last credit lifeline from the ECB, could also be cut. The European authorities appeared to be hoping that a shock-and-awe assault on the Greek economy would force the new government to immediately capitulate.
It didn’t work out that way. The Syriza party had a mandate from Greek voters to improve their living standards after six years of troika-induced depression and more than 25 percent unemployment. The new Greek government backed off its demand for a debt “haircut” and made other compromises but refused to surrender as if there had been no election. The European authorities finally blinked on Feb. 20 and agreed to grant a four-month extension, through June, of the prior “bailout” agreement. The quote marks are necessary because most Greeks have been not bailed out but thrown overboard, having lost more than 25 percent of their national income since 2008.
Relevant posts:
- Codogno, L. & De Grauwe, P. (2015) “Both Greece and its creditors must compromise to prevent the risk of a Grexit“, LSE EUROPP, 26 March.
- Janis A. Emmanouilidis (2015) “Greece back on centre stage: the results of a déjà vu summit“, European Policy Centre, Post-Summit Analysis, 23 March.
- Merler, S. (2015) “Greece: update on public finances – the State primary budget balance has returned almost in line with the target, but mostly due to expenditure cuts. Revenues continue to underperform“, Bruegel Institute, 16 March.