bobbyw24
12-14-2009, 05:45 PM
Total financial collapse, once a problem only for developing countries, has now come to Europe. The International Monetary Fund is imposing its "austerity measures" on the outer circle of the European Union, with Greece, Iceland and Latvia the hardest hit. But these are not your ordinary third world debtor supplicants. Historically, the Vikings of Iceland repeatedly repulsed British invaders; Latvian tribes repulsed even the Vikings; and the Greeks conquered the whole Persian empire. If anyone can stand up to the IMF, these stalwart European warriors can.
Dozens of countries have defaulted on their debts in recent decades, the most recent being Dubai, which declared a debt moratorium on November 26, 2009. If the once lavishly-rich Arab emirate can default, more desperate countries can; and when the alternative is to destroy the local economy, it is hard to argue that they shouldn't. That is particularly true when the creditors are largely responsible for the debtor's troubles, and there are good grounds for arguing the debts are not owed. Greece's troubles originated when low interest rates that were inappropriate for Greece were maintained to rescue Germany from an economic slump. And Iceland and Latvia have been saddled with responsibility for private obligations to which they were not parties.
The Dysfunctional EU: Where a Common Currency Fails
Greece may be the first in the EU outer circle to revolt. According to Ambrose Evans-Pritchard in Sunday's Daily Telegraph, "Greece has become the first country on the distressed fringes of Europe's monetary union to defy Brussels and reject the Dark Age leech-cure of wage deflation." Prime Minister George Papandreou said on Friday:
Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state.
Notes Evans-Pritchard:
Mr Papandreou has good reason to throw the gauntlet at Europe's feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to IMF plans. The prescription is ruinous and patently self-defeating.
The currency cannot be devalued because the same Euro is used by all. That means that while the country's ability to repay is being crippled by austerity measures, there is no way to lower the cost of the debt. Evans-Pritchard concludes:
The deeper truth that few in Euroland are willing to discuss is that EMU is inherently dysfunctional - for Greece, for Germany, for everybody.
Which is all the more reason that Iceland and Latvia, which are not yet EU members, might want to reconsider their positions.
Iceland is being required as a condition of membership to endorse an agreement in which it would reimburse Dutch and British depositors who lost money in the collapse of IceSave, an offshore division of Iceland's leading private bank. Eva Joly, a Norwegian-French magistrate hired to investigate the Icelandic bank collapse, calls it blackmail. She warns that succumbing to the EU's demands will drain Iceland of its resources and its people, who are being forced to emigrate to find work.
In Latvia, meanwhile, the EU and IMF have told the government to borrow foreign currency to stabilize the exchange rate, in order to help borrowers pay mortgages taken out in foreign currencies from foreign banks. As a condition of IMF funding, the usual government cutbacks are also being required. Nils Muiznieks, head of the Advanced Social and Political Research Institute in Riga, Latvia, complained:
The rest of the world is implementing stimulus packages ranging from anywhere between one percent and ten percent of GDP but at the same time, Latvia has been asked to make deep cuts in spending - a total of about 38 percent this year in the public sector - and raise taxes to meet budget shortfalls.
In November, the Latvian government adopted its harshest budget of recent years, with cuts of nearly 11%. The government had already raised taxes, slashed public spending and government wages, and shut dozens of schools and hospitals. As a result, the national bank forecasts a 17.5% decline in the economy this year, just when it needs a productive economy to get back on its feet. In Iceland, the economy contracted by 7.2% during the third quarter, the biggest fall on record. As in other countries squeezed by neo-liberal tourniquets on productivity, employment and output are being crippled, bringing these economies to their knees.
The cynical view is that that may have been the intent. Instead of helping post-Soviet nations develop self-reliant economies, writes Marshall Auerback, "the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells."
But the people are not submitting quietly to all this. In Latvia last week, while the Parliament debated what to do about the nation's debt, thousands of demonstrating students and teachers filled the streets, protesting the closing of a hundred schools and reductions in teacher salaries of up to 60%. Demonstrators held signs saying, "They have sold their souls to the devil" and "We are against poverty." In the Iceland Parliament, the IceSave debate had been going on for over 140 hours at last report, a new record; and a growing portion of the population opposes underwriting a debt they believe the government does not owe.
In a December 3 article in The Daily Mail titled "What Iceland Can Teach the Tories," Mary Ellen Synon wrote that ever since the Icelandic economy collapsed last year, "the empire builders of Brussels have been confident that the bankrupt and frightened Icelanders must finally be ready to exchange their independence for the 'stability' of EU membership." But last month, an opinion poll showed that 54 percent of all Icelanders oppose membership, with just 29 percent in favor. Synon wrote:
http://www.huffingtonpost.com/ellen-brown/eu-imf-revolt-greece-icel_b_389409.html
Dozens of countries have defaulted on their debts in recent decades, the most recent being Dubai, which declared a debt moratorium on November 26, 2009. If the once lavishly-rich Arab emirate can default, more desperate countries can; and when the alternative is to destroy the local economy, it is hard to argue that they shouldn't. That is particularly true when the creditors are largely responsible for the debtor's troubles, and there are good grounds for arguing the debts are not owed. Greece's troubles originated when low interest rates that were inappropriate for Greece were maintained to rescue Germany from an economic slump. And Iceland and Latvia have been saddled with responsibility for private obligations to which they were not parties.
The Dysfunctional EU: Where a Common Currency Fails
Greece may be the first in the EU outer circle to revolt. According to Ambrose Evans-Pritchard in Sunday's Daily Telegraph, "Greece has become the first country on the distressed fringes of Europe's monetary union to defy Brussels and reject the Dark Age leech-cure of wage deflation." Prime Minister George Papandreou said on Friday:
Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state.
Notes Evans-Pritchard:
Mr Papandreou has good reason to throw the gauntlet at Europe's feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to IMF plans. The prescription is ruinous and patently self-defeating.
The currency cannot be devalued because the same Euro is used by all. That means that while the country's ability to repay is being crippled by austerity measures, there is no way to lower the cost of the debt. Evans-Pritchard concludes:
The deeper truth that few in Euroland are willing to discuss is that EMU is inherently dysfunctional - for Greece, for Germany, for everybody.
Which is all the more reason that Iceland and Latvia, which are not yet EU members, might want to reconsider their positions.
Iceland is being required as a condition of membership to endorse an agreement in which it would reimburse Dutch and British depositors who lost money in the collapse of IceSave, an offshore division of Iceland's leading private bank. Eva Joly, a Norwegian-French magistrate hired to investigate the Icelandic bank collapse, calls it blackmail. She warns that succumbing to the EU's demands will drain Iceland of its resources and its people, who are being forced to emigrate to find work.
In Latvia, meanwhile, the EU and IMF have told the government to borrow foreign currency to stabilize the exchange rate, in order to help borrowers pay mortgages taken out in foreign currencies from foreign banks. As a condition of IMF funding, the usual government cutbacks are also being required. Nils Muiznieks, head of the Advanced Social and Political Research Institute in Riga, Latvia, complained:
The rest of the world is implementing stimulus packages ranging from anywhere between one percent and ten percent of GDP but at the same time, Latvia has been asked to make deep cuts in spending - a total of about 38 percent this year in the public sector - and raise taxes to meet budget shortfalls.
In November, the Latvian government adopted its harshest budget of recent years, with cuts of nearly 11%. The government had already raised taxes, slashed public spending and government wages, and shut dozens of schools and hospitals. As a result, the national bank forecasts a 17.5% decline in the economy this year, just when it needs a productive economy to get back on its feet. In Iceland, the economy contracted by 7.2% during the third quarter, the biggest fall on record. As in other countries squeezed by neo-liberal tourniquets on productivity, employment and output are being crippled, bringing these economies to their knees.
The cynical view is that that may have been the intent. Instead of helping post-Soviet nations develop self-reliant economies, writes Marshall Auerback, "the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells."
But the people are not submitting quietly to all this. In Latvia last week, while the Parliament debated what to do about the nation's debt, thousands of demonstrating students and teachers filled the streets, protesting the closing of a hundred schools and reductions in teacher salaries of up to 60%. Demonstrators held signs saying, "They have sold their souls to the devil" and "We are against poverty." In the Iceland Parliament, the IceSave debate had been going on for over 140 hours at last report, a new record; and a growing portion of the population opposes underwriting a debt they believe the government does not owe.
In a December 3 article in The Daily Mail titled "What Iceland Can Teach the Tories," Mary Ellen Synon wrote that ever since the Icelandic economy collapsed last year, "the empire builders of Brussels have been confident that the bankrupt and frightened Icelanders must finally be ready to exchange their independence for the 'stability' of EU membership." But last month, an opinion poll showed that 54 percent of all Icelanders oppose membership, with just 29 percent in favor. Synon wrote:
http://www.huffingtonpost.com/ellen-brown/eu-imf-revolt-greece-icel_b_389409.html