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13 Σεπ 2014

A modern Greek tragedy

Greece entered the Euro currency in January 2001. This was supposed to protect and develop our economy. Yet, the opposite occurred. For many years before, living with our historical currency the drachma, we have never experienced a similar catastrophe like today. We may indeed speak for a modern Greek tragedy. It is true that, part of the blame is due to the viciousness of our political system. But the same political system, more or less, existed also in the past during the drachma years.

Greece is soon entering the sixth consecutive year of deep recession. Since 2008, the  country’ s  GNP has dropped more than 30% and this extreme downward trend continuous with no light in the end of the tunnel. Hundreds and/or thousand of enterprises close. Main trade streets of Athens and of other towns, look like cemeteries of shops. Official total unemployment is near 30% and more than 60% for the young. In a country of about 11 million people, every day more than 1.400 people lose their jobs and about 2-4 commit suicide. Poverty is wide spreading.  The suffering is visible everywhere. A lot of desperate people fly away searching for a job abroad. There is a massive immigration exodus And a massive influx of illegal immigrants, mainly of Muslims, that alters the country’s labor and ethnic basis. Greece, after 3.000 years of existence, may not exist in the next 50 years.

Greece the birthplace of European civilization pays the price of the most irrational economic experiment in modern history. That of the euro zone, an abnormal common currency without the existence of any central political and economic umbrella.

South Cyprus was one of the most affluent European nations before its entrance to the euro zone in January 2008. A few years after, the suffering island is down to its knees. The north of Cyprus occupied by the Turks, contrary to all United Nations decisions, was and still is, according to the economic indexes, far poorer than its southern brother. Being out of the euro zone, now, north Cyprus stands well on its feet. How can  a poor territorial   identity may surpass the depression so easily, but a much more developed country cannot?  Cyprus is alleged for being a laundry of black money. This is true to a certain extent, especially before its entrance to the euro zone. But it stands as joke to direct such allegations to Cyprus only, when about half of the total international economic transactions are directed to off-shore and/or tax paradises all over the world. Recently it was known that, 18 billion euro of Russian capital fled from Cuprous to British Virgin Island.

According to the OECD, the following forty five states do not follow internationally accepted tax standards : Ireland, Costa-Rika, Liberia, Cyprus, Lichtenstein, Vanuatu, Luxembourg, Uruguay, Panama, Singapore, Finland, Hong-Kong, Seychelles, Samos, Belize, Bahamas, Nauru, Gibraltar, Gerstein island, Bermudez, British Virgin Islands, Mauricio, Cayman islands, Nevis island, Niue, etc. The well informed “Forbes” magazine, reports as tax-paradises, amongst others, the USA State of Dialoguer, Luxembourg, Switzerland,  the City of London, Ireland, , Belgium, Hong Kong, Bermudez, the Cayman Islands, Lichtenstein, Monaco and Adores, the last three of which are known to have close links to Germany, France and Spain accordingly.

The world super powers can and must extinguish  those  tax heavens, the land of banking malpractices, the launderette of black money. But they do not. Except in cases such as Cyprus, which has been a thorn in their back for various reasons, one of those supposed to be their alleged connection to Russian black money. It appears that, “those who have the power order the music and set the rules”. In the case of the euro zone, the power lies with those who possess the key of the money box. They are those who print, manage and manipulate the euro.

The euro zone ill functioning and the casino capitalism are to blame  

In one of our studies at the University of Piraeus, we looked at main economic indexes, the GNP, the balance of payments, public deficits, inflation and unemployment, in an attempt to explore the development course of countries within and outside the euro zone. We found that, countries outside the euro zone such as Britain, Denmark, Sweden, Czech Republic, and Bulgaria, Hungary, Poland, Romania, maintain a steady upward growth trend, with partial decline with the advent of the crisis of 2009.[1] Countries outside the EU like Norway, Serbia, Turkey survived the crisis, and now develop at a normal and/or fast pace. As does Russia, China, India, Brazil, Argentina, even Ethiopia and Ghana, and many others all over the developing world. Within the  euro zone, the peripheral  countries, Greece, Italy, Portugal, Spain, Ireland the GIPSI, kept on well before joining the euro in 1999-2002, but drop downwards something a little later. The same is more or less true for other euro zone countries and especially for Slovenia, Slovakia, Estonia, Belgium.  Only  Germany, Austria, Finland, Holland, and to a lesser extend France, appear to survive the crisis. But this will not last. The euro zone crisis, one way or another will finally hit the latter as well and especially Germany, its leading force. Germany.

So, today, five years after the beginning of the crisis, the majority of the developed and developing world, have gotten back on their feet. Only the euro zone suffers and soon the virus from the south will invade the north. The latest Eurostat data of a 0,7% GDP increase in the euro zone is

A basic question arises. What is the real cause of such a paradox?  I will be happy to hear various proposals. But, strong statistical evidence points only to one strong explanation.  This is mainly so because of  “the  ill functioning euro zone, combined with the malpractices of the extreme monetarist policies of the casino after - capitalism, the existence of internationally protected tax paradises and uncontrolled capital flows, the unification of trade and investment banks, the underestimation of the real productive economy and of humanitarian values in favour of the market ideals”.  As proven by professor Steve Keen[2], by the end of the 1980, at an international level, the financial sector surpassed the non financial sector and after that period it rises at a very faster speed. ( see table). The “bubble economy” overthrows the real economy. And this results to the widening of income differences and to frightening world economic crises.

As the Schiller Institute states in its introduction to this conference “if somebody is to blame, these are not the people whose civil and labor rights, hard-wan over centuries, are disappearing down the abyss”. Yet, “the have ones always ask more and more for the have not”, as Brecht said.

The Greek tragedy revisited

Paul Krugman, the Nobel Prize economist writes that[3] “Fifteen years ago Greece was no paradise, but it wasn’t in crisis either. “Then Greece joined the euro, foreign money poured in, the economy boomed, inflation rose; and Greece became increasingly uncompetitive. The Greeks squandered much of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble. And then the bubble burst and the whole euro system became all too apparent. Why does the dollar area — more or less work, without the kind of severe regional crises now afflicting Europe? The answer is that we have a strong central government, which in effect provide automatic bailouts to states that get in trouble. The origins of this disaster lie north, in Brussels, Frankfurt, where officials created a deeply — perhaps fatally — flawed monetary system. And the solution will have to come from the same places. Greece does indeed have a lot of corruption and a lot of tax evasion, and the Greek government has had a habit of living beyond its means. Beyond that, Greek labour productivity is low by European standards — about 25 percent below the European Union average. However, that labour productivity in, say, Mississippi is similarly low by American standards. On the other hand, ,the Greeks aren’t lazy — on the contrary, they work longer hours than almost anyone else in Europe, and much longer hours than the Germans in particular. Nor does Greece have a runaway welfare state, as conservatives like to claim; social expenditure as a percentage of G.D.P., the standard measure of the size of the welfare state, is substantially lower in Greece than in, say, Sweden or Germany, countries that have so far weathered the European crisis pretty well. So how did Greece get into so much trouble? Blame the euro”.
In addition, Kenneth Rogoff [4] another well known economist adds that, “the problem in Greece, is not an ordinary recession but a full-blown financial crisis, something which countries usually take a lot longer to recover from. This kind of economic collapse goes much deeper than a normal slowdown. The longer the economy continues to shrink, the more restless the trade unions get, and the more pressure builds up on politicians to put an end to the misery. The country would leave the monetary union and reintroduce the drachma, for example. The drachma would immediately trade at deep discount to the euro, making Greece's export and tourism sectors competitive again”.
Hans Werner Sinn[5], the top German economist ascertains that, “the cheap loans that the euro brought the country artificially raised prices and wages. Europe should provide the money to ease the exit from the currency union. After a short thunderstorm, the sun will shine again. After the exit, the country   would   be competitive again. Because Greek products would rapidly become cheaper, demand would be redirected from imports towards domestically produced goods. The rich Greeks who deposited so many billions in Switzerland would see the falling property prices and wages and would have an incentive to start investing in their own country again. The chaos can only be avoided if Greece leaves and the currency depreciates immediately. The plan to radically restructure Greece within the euro is illusory. The Greeks are being held hostage by the banks and financial institutions which want to make sure that money keeps on flowing from government bailout packages -- not to Greece, but into their coffers. People keep on saying "the world will end if you Germans stop paying." In truth only the asset portfolios of some investors will suffer”.
On top of all these arguments, Helga Zep Larouche[6], stresses, that "the imposition of the euro system as the 'price to pay for German unification' was never done with the intention of a creating a prosperous European economy, but rather to have Europe revert back to a feudal state under a supranational dictatorship. The present crisis in the Eurozone is  the result of an intended 'regime change,' away from sovereign nation states, towards feudal dictatorship, which is just another way of saying 'globalization.' As for the economic policy there is an urgent necessity to “implement immediately Glass-Steagall types of complete bank separation, with toxic assets being written off, rather than paid by the taxpayers”. That must be followed, she said, with “the creation of a credit system, and the "build up of the real economy through well-defined development program for Southern Europe, the Mediterranean and Africa elaborated by the Schiller Institute."

The suit of the euro does not fit Greece and the other peripheral economies

The suit of the euro zone without a central political umbrella is a costume that does not fit the southern European economies. Especially this so for Greece which is based on tourism and agriculture,  that requires a labor-intensive production process. Labor costs can not be compressed below a certain level so that the total production costs will be lower or equal to that of our competitors. This can be seen empirically - the room in a Greek hotel costs about twice its counterpart in Turkey, Egypt, Bulgaria, Romania, Hungary and not only. Furthermore, our oranges, lemons, peaches, cherries, olives are falling from our trees and are rotting. These products are substituted by cheaper imports from faraway Argentina, Morocco, Egypt, etc.  Thus the Greek economy suffers from not competitive prices. Add to that, the cost of fertilizers produced by oligopoly companies in north Europe, cost more than double for Greece with  relevant consequence for production costs. Imported Greek armaments from the west, in the last twelve years, cost about 100 billion Euros, a sum almost equivalent to our original deficit. Turkey, a candidate for entering the E.U., direct blatant threats to Greece’s and Cyprus’s territorial integrity and obliges us to spend on armaments the largest portion of G.N.P. internationally after the U.S.A. Why the E.U. does not protect its eastern boarders and let   Greece alone to struggle in the troublesome waters of the area?

On the other hand, the hard euro well measures the northern European countries which produce oligopoly products of capital intensive and innovative high-end technology. The cost of these products can be compressed significantly and profit margins are huge. This permits the northern countries to accumulate large foreign exchange surpluses and speculate on the also huge difference of spreads.

As things stand now, the only clear solution is the Grexit, together with a same move by the other southern countries, the Italy appearing to lead the chorus.  The exit from the euro, no doubt, will initially be painful. Yet, now we experience just as painful hours, but without hope for tomorrow. The maintenance of an economy in a state of financial paralysis, does not allow much room for hopes of recovery. The present extreme recession policies, the tragic uprising of unemployment, the excessive compression of labor rewards and of pensions, are both   inhumane, and uneconomic. They lead to a large drop of domestic demand, as well as to wide social uprising, with tragic economic and social consequences.  Depression creates more depression and lowers the tax base. Poverty  creates more poverty, misery   and   upheaval. Loans lead to more loans and dependency – a perpetual cycle. For as Menandros[7] said,”loans make slaves the human beings”. The country’s poor competitiveness, its shrinking domestic production and consumption, is leading to a vicious circle of debt defaults and the need for more and more new loans. And over the long term, this is burdensome to all, even for our lenders. These policies are totally wrong.  They are not the outcome of logic. And common logic is what we need today. Unless, it is true what some people whisper. These policies derive from   a dark plan of the “ big brother” for the total subordination of the weaker countries to the bosses of the international  casino after capitalism.

What we do

According to our plan B which is based upon wide scientific and political research, the exit from the hard euro but not from the E.U., should be accompanied with a controlled bankruptcy by cutting about 50-70% of total debt, with a grace period of two years to start repayment of the remaining 30-50% and by extending the repayment period. The new drachma will be deflated and may be directed at levels of a reasonable rate linked with a basket of currencies which will contain the euro, the dollar and other soft currencies of our competitive countries. Another solution could be the creation of a soft link between the national currencies of the southern European countries, after their exit form the euro zone. All these, should be combined with the control of capital and commodity flows and the splitting between trade and investment  banks in accordance with Glass Steagal options. Furthermore, the exit should be accompanied with government restriction spending, modernizing public administration, social insurance and health care, combating corruption, impunity, bureaucracy and reducing tax evasion, together with a sense of fairness with efficiency, competence and honesty. Public spending should be initially allocated to productive investments and the protection of the poor and of the social welfare.  Low and medium wages and salaries should be increased eventually at a moderate level and in accordance with the shift towards internal consumption, so as to avoid the dangers of hyperinflation. The Government must take care for the provision of basic commodities, especially food, medicine, fuel, etc., and control trade malpractices and the black market.  Certain commodities, mainly those imported will disappear for a while.( But, we may survive without whisky, caviar, Porsche Cayenne, etc!). We must be cleared from the pathetic syndrome of the “import country”, reactivate our production basis and try to consume no more than we produce. For all these, there is a need to elaborate a development schedule, a new Marshall plan.  
Rise of Gross Domestic product in Argentina and Brazil  2000 - 2012
Source : Paul Krugman : Down Argentina way, The New York Times,3/5/2012
Looking at the Argentinean paradigm ( see table above ) and other variables, we have estimated that, the difficulties and abnormalities of the initial  period of returning to the national currency, may last from 4-14 month and will resemble the figure presented here ( see table below ).

Estimated evolution of the Greek economy within and outside the euro zone

economic evolution outside the euro

economic evolution within the euro

A political and economic manifesto for the Grexit and not only

“Instead of anathema to the dark, you may better light a candle”, Goethe   said.  Now its time for action.  Here we present a brief outline of a Plan B, a context of specific proposals to get out of the present Greek tragedy and look forward to a hopeful future.

  • Remove the Troika Memorandum and as said, return to the national currency the drachma, with controlled default, renegotiation and trimming debt to levels of 50-70%, with elongation repayment of the balance and grace period of 2-3 years.
  • Strengthen the country’s historical national culture, within the European Union of the peoples and not of the markets and banks, promote multidimensional foreign policy based upon the national interest, zero tolerance for illegal immigration, prevent young Greeks to flee abroad, and strengthen political and demographic ties with the Greeks all over the world.
  • Promote the alliance of the countries of southern Europe, with a mandate of the exit from the euro for Greece, Italy, Spain, Portugal, Cyprus, return to national currencies, examine tiding the exchange rates of our currencies, create free trade zone, common economic, banking, monetary practices, common political and economic course for strengthening our geopolitical power, negotiate debts, recovery of energy and productive resources.
  • Support   the domestic entrepreneurship, production, and consumption, enhance employment, the welfare state, the low and middle incomes, with a view to regain   competitiveness of the economy, a fairer distribution of the national income and the protection of the environment.
  • Control the banking system, the capital flows and the speculative financial transactions, impose the separation between commercial and investment banking and create a central investment bank, mainly for the Greeks and the friends of Greece from all over the world.
  • Promote strategic investments for robust growth in the country with direct use of the energy and the mineral wealth, of alternative energy sources, the enhancement of healthy industrial and manufacturing plants, agricultural production, modern crops, farming, food industry, beverage and fertilizer , the quality and marine tourism, defense products, shipbuilding, pharmaceutical, transport, financial and educational services, information technology and new technologies, research and innovation, with special attention to the export orientation of Greek enterprises and create international educative and research centers by reclaiming the numerous Greek scientists all over the world.
  • Restrict the state and government expenditure, rationalize the public administration, social security and health care, restore a  fair welfare state, combat corruption, impunity, bureaucracy, tax avoidance and evasion, establish a stable, simple and fair tax system and an effective management of the everyday life of the citizens.
  • Promote genuine democracy and decentralization but precede the general interest of the country towards self-centered localism and corporatism, adherence to collective effort and personal responsibility, rules of meritocracy, transparency and controls to combat corruption and bureaucracy and speeding the smooth operation justice.
  • Establish the institutional renewal by not allowing the same persons to occupy executive positions more than two terms of office (Prime Minister, ministers, prefects, mayors, etc.) and promote in general, political cadres with irreproachable biography, knowledge, skills, competence and integrity.

An epilogue

Last but not least may I suggest that, our conference will come to a resolution that, ‘will denounce the ill functioning of the euro zone and the malpractices of the extreme monetary policies of the casino after-capitalism, demolish the protection of the international tax paradises and uncontrolled free capital flows, introduce the Glass Steagal separation between trade and investment  banks, create a new Marshall plan for countries in need, raise the real productive economy over the markets, promote a new vision of human  development and reactivate  a comprehensive renaissance of classical culture  based on the beauty and the soul of mankind”.

As Fredrick Schiller puts it, “lose not ourselves in a far off time and seize the moment that is thine, we dare to err and to dream” for the renaissance of  all Europe. And take up the strands of the flourishing phases of previous epochs, such as the ancient Greece and not only. Then and only then, “will we enter into the land of knowledge through Beauty’ s  dawn gate” and the glorious   memories of the Athenian-Pericles’- golden ages.  And then, the  abducted  Europa by Zeus, would find her sun shining smile again.

[1] E.U countries within the Eurozone are Austria, Belgium, France, Germany, Greece, Estonia, Ireland, Spain, Italy, Cyprus, Luxembourg, Malta, Holland, Portugal, Slovakia, Slovenia, Finland and outside are Bulgaria, Denmark, Leetonia Lithuania, G. Britain, Hungary, Poland, Rumania, Sweden, Czech Republic.
[2] Steven Keen is a well known Australian neokeynsian economist that argues about similar matters, Keen, S ( 2012). debunking economics
[3] In his opinionated editorial ‘Greece as a Victim” for the New York Times, 17/6/2012
[4]   in Speagel

[5] In an interview with Stefan Kaizer, March 2012,presented in a free manner here.
[6] In an  interview in the daily Greek newspaper Ellada avrio, on 25 february 2013
[7] Menandros was an ancient Greek philosopher