July 02, 2015
Mark Weisbrot
The Huffington Post, July 2, 2015
View article at original source.
The battle over the future of Greece will not end on Sunday, no matter how the vote goes or — if the Greek people vote “no” — how the European authorities respond to their choice. This is a fight over the future of Europe, and the people who are currently strangling the Greek economy in a transparent attempt to intimidate the Greek electorate understand this very well. That is why they are being especially aggressive and ruthless at this moment: trying to convince Greeks that a “no” vote means leaving the euro, claiming that such a decision would have calamitous consequences, and giving them a taste of the financial crisis and economic disruption that they will suffer through if they refuse to do as they are told.
Last Sunday, the European Central Bank (ECB) made a deliberate decision to limit Emergency Liquidity Assistance to the Greek banking system. The limit was set low enough to force — for the first time in the six years of depression that the ECB has deepened and prolonged — the closure of Greek banks.
It is not surprising that the very idea of a referendum would provoke the ire of the eurozone authorities. Unlike the European Union, which has a different history, the eurozone project has become a fundamentally anti-democratic project. It has to be; the people currently running it want to reverse, as much as possible, decades of social progress on issues that are vital to Europeans. But you don’t have to take my word for it: there is a paper trail of thousands of pages that spell out their political agenda. The IMF conducts regular consultations with member governments under Article IV of its charter, and these result in papers which contain policy recommendations. There were 67 such consultations for EU countries during the four years of 2008 to 2011, and the pattern was striking: budget tightening was recommended in all 27 countries, with spending cuts generally favored over tax increases. Cutting health care and pension spending, reducing eligibility for disability and unemployment compensation, raising retirement ages and increasing labor supply were also overwhelmingly common recommendations.
The European authorities took advantage of the crisis and post-crisis years to impose parts of this agenda on the weaker eurozone economies: Spain, Italy, Portugal, Ireland and most brutally of all, Greece. More than 20 governments fell as a result, until finally, in Greece on January 25, a government was elected that said no. The goal of the European authorities, therefore, is to topple this government. This has been apparent since the ECB cut off its main line of credit to Greece on February 4.
Now comes a group of U.S. members of Congress warning the IMF that it could — perhaps for the first time in decades — be held accountable for the economic destruction that it’s helping to implement. The letter objects to the IMF “taking a hard line with respect to demands that Greece implement further reforms” and notes:
Greece has already reduced its national public sector work force by 19 percent and carried out many of the reforms demanded by the IMF and its creditors. It has gone through an enormous fiscal adjustment, achieving the largest cyclically adjusted primary budget surplus in the euro area last year; and a very large current account adjustment (with a 36 percent reduction in imports). At the same time, as even the IMF has acknowledged in its own research, the austerity imposed by Greece’s creditors over the past five years turned out to be far more devastating to the economy than they had predicted.
Senator Bernie Sanders, who joined House members in signing the letter, issued his own blistering statement yesterday. “At a time of grotesque wealth inequality, the pensions of the people in Greece should not be cut even further to pay back some of the largest banks and wealthiest financiers in the world,” said Sanders. Among the House signers were the co-chairs of the Congressional Progressive Caucus, Representatives Keith Ellison and Raul Grijalva, and the Dean of the House and Ranking Member of the Judiciary Committee, Rep. John Conyers.
Unlike many letters from Congress that are ignored by the executive branch, this one might be taken more seriously by the IMF and the U.S. Treasury department — which is the IMF’s most powerful overseer. One reason is that the IMF has been trying for five years to enact reforms in its governance structure that are very important to the Fund and Treasury — reforms that can’t be enacted unless they are approved by Congress. These reforms would make some small changes in voting representation. They wouldn’t shift the balance of power at the Fund, with the U.S. and its allies still likely to maintain a comfortable majority. But the U.S. government and the Fund have lost a lot of credibility in recent years by unilaterally holding up even these largely symbolic changes. They see this hold-up as encouraging developing countries to opt for creating new institutions such as the BRICS Development Bank and Currency Reserve Arrangement. More recently, the Obama administration suffered an embarrassing setback after the U.K., Germany and France ignored their pleas and became founding members of China’s new $100 billion initiative to create an Asian Infrastructure Investment Bank.
From the congressional letter:
As members of the U.S. Congress, we must also note the unprecedented difficulty that the IMF’s proposed quota and governance reform has faced in the U.S. Congress since 2010. As you know, this also has global implications, as some governments in developing countries have begun to lose confidence in this effort to make the IMF’s voting structure more representative of its member countries in the twenty-first century and are seeking institutional alternatives. It will be difficult to get a majority of the U.S. Congress on board for these important reforms if the IMF is seen as responsible for further damage to the Greek economy, as well as the currently unforeseeable consequences of any financial collapse.
The IMF will need all the votes it can get for this legislation to pass through Congress. It can choose to ignore this warning at its own institutional risk.
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C. He is also the author of the forthcoming book “Failed: What the ‘Experts’ Got Wrong about the Global Economy” (2015, Oxford University Press).
