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"Next question is: what happens to growth? Greece will now enter a prolonged and deep recession driven not by economic accident but by policy. And here again Greece is a warning to the world. The danger of a public-sector driven double dip in southern Europe is what's haunting the markets."
A superb argument and post. You have gone up a hundredfold in my estimation. The 1980s worked only to be spoilt by the same corruption of power we see today. The economic tsunami has a nasty after-shock. Labour have done nothing but shore up the very institutions most complicit in this whole matter.

"The net impact of this austerity package will be to take 8% out of Greek GDP"

what? you have absolutely no basis for saying that. The net impact of cutting, say, government expenditure is very hard to know, and it depends (roughly speaking) on what public sector workers who are laid off find to do instead. If you think it's as simple as cut government spending and GDP falls, then presumably you think that increasing government spending causes GDP to rise. I'm sure Greece does have a recession coming, but confident predictions of the net change in GDP are risible.

And what are the alternatives? Say the government doesn't "cut 8% out of GDP"? as you'd have it, what happens to GDP on that case? "this is a deep recession imposed on Greece from Brussels and Washington." rubbish! it's a deep recession imposed on Greece by the past behaviour of its government. You think that if Brussels and Washington were somehow "nicer" the Greeks could avoid a recession? Please, spell out how that scenario works. Let's see: Maintain Govt Spending and Don't Cut taxes, keep running massive deficit, discover nobody wants to lend to you and ... oh, right, an even bigger recession.

Although of course Brussels and Washington could be so nice as to simply transfer billions of Euros/Dollars from their taxpayers to Greece each with no expectation of repayment, so I guess it's Brussels and Washington's fault they are not doing that.

Greece might be the eye of the storm but there is still plenty of storm to go round for everyone. It is even more copious than BP's oil. Perhaps we should be accepting this reality and sharing the storm out amongst ourselves in a more egalitarian fashion.

You remark that your parent's generation saw the end of social solidarity and sterilised milk in the Eighties. You were lucky: social solidarity was mortally injured by the mid-Fifties as the effect of the exigencies of wartime waned amongst the population at large. It waned faster in some areas than others but from my perspective it was dead by 1970. And I missed it; and still miss it, as it was good.

A few years later the wicked Milk-Snatcher deprived the kiddies of the low grade milk full of atomic radiation the ratepayers were forced to buy them for fear of a child suffering from rickets in the Rhondda in the Thirties. Vitamin deficiency in one generation causes cancer in another: discuss.

By the Eighties it was clear that western social-democracy had chosen the route of Big Government towards the Utopia they had struggled for since the end of the Great War. This was the force that launched a million bureaucratic careers.

This was the point at which I stepped away from active politics for the simple reason that I was imbued with an older idea that government is essentially useless to the common weal and can only act as an agent for the dominant class in society. Rather than liberating people, this vision of an enabling state was in reality a state that sought to become a substitute for society as the apparat set out to micro-manage our lives. In other words we faced just another form of totalitarianism built not on stake-holding as claimed but debt-holding. Like the earlier Soviet concept it was doomed.

It is easy to fantasise about Europe and the vision of an united Europe. I consider myself a European not because of fine words spoken in Brussels but because I am part of a long tradition of working people trying to build a better life within Europe through their own actions with the mutual support of others in other countries in the Continent. I do not need governments to do this for me as I can do it for myself.

This is the point on which history will turn. This is where the next struggle will take place. The European social democratic state has failed both as a manager of the economy, the regulator of the banks and as the indebted client. It is no wonder the banks got away with so much for so long as the political class where and still are their clients.

Today we are either bankrupt or likely to become bankrupt. Our money has been taken away and all the politicians can do is wring their hands and whinge.

In asking the question `do we need this'; we find the only answer. No: we don't. Rather than huddle behind the warmth of the defensive brazier we need to get out into our world and take control for ourselves. We are the people and there is no other; so who the blazes give us orders? You don't have to fight the riot police; this is all part of the fantasy of bogus politics: opposition as ritual. Just win the police over; as in trying to face you down they are as scared as you once were.

Good that you're keeping an eye on Greece, Paul. Especially after Stephanie was given barely a couple of minutes on last night's ³ÉÈË¿ìÊÖ News. I fear that the lesson from Greece will only be learned by the UK in retrospect, but then we are - understandably - preoccupied in our own General Election.

I disagree that it's the cappuchino generation that will be the bellweather of the austerity plan. They can pick up their mobiles and follow the money elsewhere. Instead, as we are currently seeing, is the mobilisation of labour and the students against the "forces of capital" represented by the Papandreou regime and - more significantly - the emerging European superstate.

The same rejection of a popular underwriting of national debt that we saw in peaceful, law-abiding Iceland has now moved to the more volatile end of Europe where the people aren't going to accept the Government strategy unopposed. Why should they? As they see it, they did not benefit from the gluttony in the banks, so why should they be the ones to stump up?

There comes a point at which tax hikes become counter-productive and here, together with over-optimistic growth projections comes the probable downfall of the new plan. Private debt has become national debt is becoming supra-national debt. Volcano watchers in Iceland are keeping a eye on the old fracture lines - European watchers are well-advised to do the same.

I heard on the Today prog. this morning a Greek who thought the Germans should lend the bailout money at a low rate of interest because of the damage Germany had done to the country during the Second World War, with this sort of mentallity embedded in the Greek psyche it's not wonder they are in this mess. Greece probably did more damage to itself in its civil war after Germany was defeated, than was ever done by the Germans themselves. I do hope that the UK doesn't follow a similar line when it comes to our bailout.

It's also worth remembering that Greece was run by a bunch on generals not too long ago, and with all the civil unrest that is going to happen when the cutbacks realy start to bite there, we could see the generals back.

Greece is a basket case. Spain, Portugal, Italy, Ireland, UK and also the USA are also basket cases in waiting.

The difference is that the UK and USA will monetise the debt, thereby inflating the debt away and crashing the currency. This is why the Chinese are buying resources, as they know that's the plan.

An over valued currency always leads to disaster for the real economy. Churchill's budget of 1925 is a textbook case of that.

The euro was never right for countries like Greece (or the UK). Greece managed it by governmental fraud, exacerbated by the global credit crunch which was a result of a financial system which

(1) facilitates gambling rather than real investment .

(2) makes it almost impossible to distinguish money from credit, but gives the banks conrtol of the latter, ie money creation, which they use for (1). (and charge a commission on this non-existent cash)

The only hope for Greece is to get out of the euro, default on its debts, and let its banks go bust. Start from scratch just like Germany and Japan did after WWII. At least Greece can feed itself.

The knock on effects will be terrible, and be another nail in the coffin of our discredited financial system.

We need a completely new finance model, in my opinion some kind updated Social Credit system which gives power to the productive rather than a parasitic financial class, and matches purchasing power to the goods and services available.



Unfortunately, given human greed, ignorance and the capacity for self-delusion, there is no guarantee that anything will come out of this but more misery. Personally, I am very afraid. To lower the tone, bricking it in fact!

@1 Oldrightie

Bankrolled by North Sea Oil, the Thatcher goverment contributed significantly to Britain's present problems by concentrating on money and not "real" production. Their understanding of economics was ideological, whereas the Blair Brown government's has been opportunistic. The latter thought they had a gift-horse which they did not look in the mouth.

Things have to change. We must at least try to get off the economic treadmill. It is a STUPID world where some people need to buy c**p in order that others don't starve. That's why I would like to vote Green, but unfortunately we don't have a candidate.

No 2 It is not difficult to gauge what the effects on the economy will be if there are massive public sector job losses, wage freezes and cuts in benefits - all of which are planned for Greece and have been executed in Ireland and Latvia. It is serious deflation and if the exchange rate is constrained (Euro) just where will the positive growth come from - teachers, doctors nurses openning wine bars, making traditionally dressed greek dolls or churning out tubs of humous? No, it is more likely they will flock to less afflicted parts of Europe in search of work or business or even benefits.

It is clear that we have all been living beyond our productive capacity and productivity as represented by both private and public debt. What can you expect when our government outsources economic management to the geeky MPC and thinks that 'independent' fixing of interest rates by committee is the be all and end all of economic management. The strategic paying down of debt through fewer commitments and tighter personal credit is to be preferred to economic self harm that the Greeks are being bullied into.

#6. DebtJuggler

Yep, that is it in a nutshell. Brown was just on the ³ÉÈË¿ìÊÖ declaring that he intends to keep interest rates low for years to come if gets elected.

The prudent savers are being punished to enrich the greedy and freckless who got involved in debt, in liar loans and house price ramping. He talks of low inflation but, in truth, any cash in savings will be eroded away with inflation in the years ahead.

It saves house prices, for now, but means that we are now in an era of inflation re things we buy - houses, cars, electronic goods - and deflation re things we do - jobs and wages. Eventually more and more people are going to realise that they will never be able to buy a home to live in so great the gulf between house prices and wages.

But all of that is just a side show in my personal view.

I think what is happening now in Greece is just a taster of what is to come across the EU, here in the UK and perhaps also in the US. The masses are now just economic cannon-fodder for the new breed of the super-rich who have learnt they can bankrupt companies and countries with absolutely no come-back. In fact, they get hugely rewarded for doing so by a political class - what a term - that is way too close to the bankers and billionaires.

The people of Greece are being made to suffer for the whims, mistakes and obscene self-enriching of the elite. Soon, the rest of us will be forced to join them.

This is how the 'great' political movements of the 20th Century begun - a tiny elite who had plenty and masses who went hungry resulting in protests, in marches, in storming of palaces. It gave us Communism, National Socialism and others. It gave us ethnic cleansing, death camps and World War.

History is, again, being made in Greece. I fear how future generations will look back on this time.

#3 Stanilic.
always thought provoking...
"This is the point on which history will turn. This is where the next struggle will take place. The European social democratic state has failed both as a manager of the economy, the regulator of the banks and as the indebted client. It is no wonder the banks got away with so much for so long as the political class where and still are their clients."
The European Social Democratic state has failed, but why? Is this failure not inherent in democracy...the people never vote for the difficult choices, turkeys don't vote for Christmas, politicians fear telling the electorate the true picture and losing power, all part of the same craven weakness. Depending on definition of European Social Democratic State (ESDS) you may say this implies a social safety net [inc. pensions], health care provision, free education, and a degree of regulation that protects social goods. I wouldn't disagree that government spending has gone beyond what states can afford for these commitments, but that is more to do with overshoot where expectations, aspirations and overt wealth in the late 80's onwards suggested that trickle down was possible and we all ought to have the opportunity to share in the wealth.
There is no simple answer as to what subverted the ESDS and it may be caused, among other things, by the demographic change (ageing populations) and geo-political and economic forces (globalisation, post Cold war change, media and communciations [internet?]revolution). I may not be saying anything new, but the fault lines are not purely where governments were spending too much. That is more the symptom than the problem. The markets were prepared to lend to the governments to facilitate the spending and cheaply. If I could pin it on anything it is the failure of the political systems in ESDS to adapt to the changes quickly enough. For example, Greece's inability to collect tax. For example, the disintegration of society highlighted by Paul several weeks ago in Margate. For example, the persistence of a dysfunctional expenses regime in UK parliament.
As a side point, if I were the Greek government I would want a list of the identities of the transferors of €6bn which was transferred from the country last week and start there for contributions.

This comment was removed because the moderators found it broke the house rules. Explain.

"Europe looks like the weak link in the global system."

Only in so far that the cracks seem to be showing in Europe faster than other places. But the real macro view is that all significant economies and currencies have major fault lines in them! The US debt levels beggar belief (private, corporate, municipal, and state), UK levels just keep getting higher (remember that reducing the deficit does not mean paying down debt, just reducing the extra amount you borrow each year!!), China is having a property boom, and Japan, well Japan got there first with it's Zombie debt that refuses to die.

Never a lender or a borrower be.

if it wasn't for their elections germany would have created stability by now. should merkel sacrifice her political career for greece? would a bbc man sacrifice their career to save sky?

the chatter is the eu will have to do qe





meanwhile the marixist internet warfare team like to make out the only solution is a workers collective and weekly parades with over large flags.

What happens next is the question. Its a good question. Merkel sees the solution as one involving a tightening of rules of EU/Eurozone membership. Inflict reductions in EU grants and subsidies and restrict EU voting rights for those countries who maintain excessive deficits. Get EU members to sign 'living wills' to organise their potential insolvencies. Doesnt this expose the weakness of the EU policy-makers in the past. Constantly pointing to the "upsides" of membership in a no-problem world with every club member playing by the rules. Creating an informal Federation of sovereign states over ever increasing areas. Its like ferrets in a sack.Germany now painted as the head prefect telling others how to run their countries.

What it creates is the dangerous opportunity for feckless administrations to blame external forces for their own plight. I think the Eurozone will uncouple itself into a more tightly managed core thrusting toward a real Federation, not a fake one. Enter a new UK government.

Not sure what happens to the capuccino queue.

I see that censorship has now come to this ³ÉÈË¿ìÊÖ blog too.

The photograph of a man standing on Wall Street with the sign 'Jump You Feckers' is now iconic.

It is an iconic piece of photography that highlights the times in we live in as much as the 'Falling Soldier' in the Spanish Civil War or the 'Napalm Girl' in the Vietnam War.

The image of the man on Wall Street with the sign will be shown long after everyone reading this blog is dead and gone.

If you censor mention of it then you censor the moment, you censor the time in history that it reflects and you censor the freedoms at the core of our Society.

On the ³ÉÈË¿ìÊÖ, on this blog of all blogs, I would never expected to see such censorship. Time to set up my own I think.

@13 Hawkeye

The cracks are getting worse and the ³ÉÈË¿ìÊÖ has inside information provided by its resident Time Lord!



;-)

11 tonyparksrun

Thanks for expanding on my thoughts.

I believe that people will vote for hard choices if they are provided with a sensible explanation presented by a competent and trusted leadership.

This then begs the question as to the quality of leadership.

I never could understand the government borrowing argument. By all means borrow to invest to create a return which not only repays the debt but also creates further value. That makes sense: but to borrow to pay your expenses is sheer foolishness.

It was asserted a long time ago that debt is the enemy of the working man. The sad case is that today even if the working man had kept himself out of debt, he would now be expected to pay the debt of others. This draws us into expressions of injustice and oppression. Such a state of affairs is far more than immoral: it is plain dangerous.

As Percy Shelley wrote in his Masque of Anarchy:

`Men of England, heirs of glory
Heroes of unwritten story
Shake these chains which have fallen on you
Ye are many, they are few.'

(That is from memory so apologies for any errors)

I can hear the stage-hands calling for King Lud and Captain Swing to take their places for the coming performance.

Perhaps it is time to write another Charter......

Paul - excellent piece. I'd love to see far more of this analysis on the ³ÉÈË¿ìÊÖ. I've have many questions I'd like your views on.

What is going on in Greece raises many funademntal issues about the EU which, in my view, most of the media avoids. There is the question of the exposure of the French and German banks to Greek, Spanish, Italian and Portuguese bonds. There is the question of whether the EU can survive a Greek default (which, judging by the pictures from Athens this lunchtime) is a real likelihood. The Germans might not like bailing out their southern neighbours but the economic turmoil could lead to massive migration from Greece, Spain etc into the northern member states of the EU - particularly Germany.

On the coffee drinking generation, your analysis may be correct. My own view on this in relation to the UK is that the real problems will come from those people at the bottom of the pile living in the inner city sink estates. When benefits reduce in real terms and prices increase, and when these people cannot afford the few luxuries which make life bearable (flat screen TV, Sky subscriptions for the football) then the problems will begin. It is really all bread and circuses. What we will see as austerity kicks in is a rapid increase in the rate of ghettoisation of many parts of the UK.

I think your blog is great, but disagree with your argument that the bank bailouts that occurred around the world were the sake of the young. I would argue quite the contrary. Perhaps it is because I am still under 40, but I believe that the global bank bailouts around the world were really another intergenerational transfer from the young to the old, after the finances of the old appeared shaky. To rant a little more:
 Pay-as-you-go pension systems [i.e. promises made to the old by the old over a series of years] are being dismantled or are being radically altered [for the young, with the young picking up the bill for the promises that the old made to themselves], but the retirees or near retirees are taking none of the pain (the market parlance of ‘grandfathering’ is for once appropriate);
 The youth priced-out of housing were denied the opportunity for a reversal of the demographically regressive housing booms, as the middle-aged and elderly had their house prices propped-up;
 The retention of low-inflation mandates by central banks in the face of adversity meant that cash savings – held by the older generation – held their value (see David Willetts’ recent book on the distribution of cash wealth on this point);
 The pain in the short term was lessened (for the population as a whole), and the pay-back passed to the younger generation to bear over the next couple of generations: lower levels of public-sector employment to keep the promises

#15 shireblogger wrote:

'Creating an informal Federation of sovereign states over ever increasing areas. Its like ferrets in a sack. Germany now painted as the head prefect telling others how to run their countries.'

--------------------------------

...more like herding cats!

Blimey!...I've just drawn Greece in a World Cup football sweep-stake at work.

I hope Greece will be able to afford to send a team this summer.

I hope I've still got job come this summer!

#18 Stanilic
Your points on leadership, agreed and as I included in #459 stephanomics (on 3 world views)
"An end to Opacity please. Transparency of purpose as the country requires us all to sacrifice. Naive, delusional maybe, but I could sign up for that."

History is indeed being made in Greece, they are the bellweathers for all of Europe, just after the war the Greeks went left, the communists were seen as such a threat Churchill sent the spooks in there to destabilise with a lot of help from the CIA, they didn't want another Tito even though he saved their asses like the Yugoslave partisans together with the Greek partisans but once the wars over all bets return to zero. There is a good chance the banks will collapse in Greece which will cocern the moneymen in Germany, France and Italy rather more than it will the Greeks, they are the home of democracy, they are not a fledgling country but a country with rich and proud traditions who would not bow before the Bush madness and their people should be an inspiration to us all as indeed they will be seen to be....

paul: how's your 'grey' coming along?


i wonder how different this election would have been without Murdoch and his grip over so much UK media. I worry about what his media will be fomenting once the election is over, and the cuts and social unrest begins.


do you recommend Grecian 2000, or is there a newer 'colour restorer' on the market?

"But that only begs the bigger questions: what happens to the USA when its fiscal stimulus runs out - and when fiscal reality begins to hit individual US states..."

I very much agree.

The Greeks may default, they & others may leave the Euro, some may leave the EU, but when the dollar falls & US interest rates increase to try & tempt anyone to buy US government debt, that's when the stockmarkets plunge, banks go bust & the capitalist world falls apart.

The question is whether Greece can withstand the internal social pressures. There have been at least three deaths already. However hard the 'ordinary' Greek people protest innocence and seek to blame former governments (which they elected), corrupt officials, heartless speculators and the super-rich, they really do not have a whole lot of choice. They have to either take the medicine, however unpalatable, or lapse into default. Whatever the answer, setting fire to banks and killing the staff is most certainly not it.

There were at least 200,000 on the march and the leader of the Greek GSEE/TUC was shouted down. A section of the march refused to listen to instructions from the stewards and headed to occupy Parliament. After this the police used masses of teargas to break up the march which numbered more than 100,000. The measures are to be voted in tomorrow but the anger of the people is so great that it will be difficult to contain within the normal parliamentary channels. The effects of the measures will be felt over the coming year and it will be near impossible for a one party government to maintain control of the situation. The Argentinian scenario and the break up of the Euro currency as this is a specualtive attack on the Euro with the working man to pay for the crisis of the hedgefunds and the banksters.

For a moment, I thought Paul Mason was actualy predicting World War III

Google How the IMF Dismantled Yugoslavia
by Michel Chossudovsky

This record is currently being replayed. This time the epicentre
is Greece. By freezing and cutting wages whilst inflation is being
allowed to rip, depression economics will hit the Greek economy. The
presence of 2-3 million foreign born nationals in a declining economic
environment may lead to the type of ethnic strife that hit Yugoslavia.
Merkel announced tonight that sanctions should be placed by the EU to
all countries that have broken the EU's economic indices.

The leader of the German Social Democrats stated the following:

"What we are experiencing here ... is not a Greece crisis, it is a
bit more than that, it is the biggest test for European integration
since the Treaties of Rome."

The EURO will disintigrate if the speculative attacks continue
unabated...the break up of Greece may then arrive on the agenda or its expulsion from the EU as a price worth paying to keep the contagion limited.

Another brilliant summary.

You have again filled in all the gaps in the big picture.

It could be a return to the banking crisis of 2008 but this time no Keynsian measures I hope although I cannot see a way in which they won't have to turn on the printing presses again. Protecting the savers and the vulnerable must be the first priority.

Next time they will have to find out just where the bottom really is before they can even begin to sort it. A lot of short term pain involved but a more galvanised attitude to sorting it out. Otherwise it could drag on like this for generations.

As the destruction of Greece continues the world is judging .The largest form of income in the country is the tourism .You must stop the Anarchists and rebels from extending the financial loss do not picket and burn your country ..YOU NEED YOUR TOURISTS> Yes the government needs to be dealt with VOTE to remove them from office as the people have your own election ,IMPEACH THE THIEVES but keep it civilized . Greece created democracy. Start an election for the people by the people..Show the world you are intelligent people not ignorant barbarians.
GREECE is one of the oldest most beautiful places on earth .Keep it a place people of the world want to see don't scare them off it will only keep you down ,
THE WHOLE WORLD IS WATCHING show them the beauty.. This is the gift of free advertising
Be smart use your resources SAVE YOUR COUNTRY Dale Johns