Greece’s brutal creditors have demolished the eurozone project

Wolfgang Münchau writes: A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union.

In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order. The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change.

But it was not just the brutality that stood out, nor even the total capitulation of Greece. The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: regime change in the eurozone. [Continue reading…]

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With hopes low, Tsipras may have just done the best deal possible for Greece

By Costas Milas, University of Liverpool

When Alexis Tsipras walked into the meeting with the remaining 18 eurozone leaders at the weekend, he may have had in mind, not a line from Greek antiquity, but perhaps one from the Italian middle ages. Dante Alighieri’s version of hell had a simple message at its gate: “Abandon all hope, ye who enter here”. It was a very difficult, and very long, meeting for Tsipras, but my first impression is that he managed the best he could under extremely difficult circumstances.

For a start, the Greek prime minister had to explain to eurozone leaders why he was pushing for an economic agreement which, at the end of the day, had been overwhelmingly rejected in a referendum by his own people. This raised a significant issue of trust and credibility. Despite Tsipras having won Greek parliamentary support (251 out of 300 Greek MP’s gave him the “green light” to strike a deal; perhaps any deal that would keep Greece in the euro) was he trustworthy to implement what was about to be agreed?

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Throughout history, debt and war have been constant partners

Giles Frazer writes: Somewhere in a Greek jail, the former defence minister, Akis Tsochatzopoulos, watches the financial crisis unfold. I wonder how partly responsible he feels? In 2013, Akis (as he is popularly known) went down for 20 years, finally succumbing to the waves of financial scandal to which his name had long been associated. For alongside the lavish spending, the houses and the dodgy tax returns, there was bribery, and it was the €8m appreciation he received from the German arms dealer, Ferrostaal, for the Greek government’s purchase of Type 214 submarines, that sent him to prison.

There is this idea that the Greeks got themselves into this current mess because they paid themselves too much for doing too little. Well, maybe. But it’s not the complete picture. For the Greeks also got themselves into debt for the oldest reason in the book – one might even argue, for the very reason that public debt itself was first invented – to raise and support an army. The state’s need for quick money to raise an army is how industrial-scale money lending comes into business (in the face of the church’s historic opposition to usury). Indeed, in the west, one might even stretch to say that large-scale public debt began as a way to finance military intervention in the Middle East – ie the crusades. And just as rescuing Jerusalem from the Turks was the justification for massive military spending in the middle ages, so the fear of Turkey has been the reason given for recent Greek spending. Along with German subs, the Greeks have bought French frigates, US F16s and German Leopard 2 tanks. In the 1980s, for example, the Greeks spent an average of 6.2% of their GDP on defence compared with a European average of 2.9%. In the years following their EU entry, the Greeks were the world’s fourth-highest spenders on conventional weaponry.

So, to recap: corrupt German companies bribed corrupt Greek politicians to buy German weapons. And then a German chancellor presses for austerity on the Greek people to pay back the loans they took out (with Germans banks) at massive interest, for the weapons they bought off them in the first place. Is this an unfair characterisation? A bit. It wasn’t just Germany. And there were many other factors at play in the escalation of Greek debt. But the postwar difference between the Germans and the Greeks is not the tired stereotype that the former are hardworking and the latter are lazy, but rather that, among other things, the Germans have, for obvious reasons, been restricted in their military spending. And they have benefited massively from that. [Continue reading…]

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‘We’re living the Thug Life’: refugees stuck on Greek border have nothing left to lose

The Guardian reports: In a dusty field that straddles the Greek-Macedonian border, quite where one country ends and the other begins is not entirely clear.

But several Macedonian soldiers in the area are very certain. “Get back,” one shouts through the darkness, herding hundreds of refugees a couple of metres further south from where they stood a moment ago. “Get back to the Greek border.”

The crowds shuffle briefly backwards, and the soldiers seem satisfied. “Please,” a Syrian mother calls back, a toddler in her arms. “We are a family. Where should we go now?”

It is a filthy spot, filled with the detritus of past travellers. Surrounded by farmland, the only lighting comes from a nearby train track, and the only bedding is the sand the woman stands on.

“You must sleep here,” the Macedonian replies.

It is an alarming order – not just for these refugees, who have walked 40 miles to reach this point, but for the people of the country they have just crossed. Greece has received nearly 80,000 refugees this year, a record figure that has seen it overtake Italy as the primary migrant gateway to Europe. Migrants are arriving in such high numbers by dinghy from Turkey that the authorities – already battling an economic crisis – cannot feed, house, or process their paperwork fast enough, leading to bottlenecks on the Greek islands.

One factor helping relieve the pressure was the constant stream of refugees out the other side of Greece, near the northern border town of Idomeni, into Macedonia. But in the past fortnight, the Macedonian government has begun to regulate the flow. Until a few days ago the route had been blocked for a whole week – raising the spectre of a refugee bottleneck at both ends of Greece, at a time when the country is struggling to support its own citizens, let alone a record wave of refugees. [Continue reading…]

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The eurozone crisis must not be allowed to derail the greater European project that has been decades in the making

Mark Mazower writes: At the heart of the European project is a deep ambivalence towards nationalism. Nineteenth-century theorists of nationalism saw no incompatibility between love of country and international solidarity. But that was before two world wars. Twentieth-century fathers of federalism, such as the Italian Altiero Spinelli, had a barely disguised loathing for the excesses of nationalism, which they associated with fascism and war.

We can have a little more confidence than that. Even the No vote in the Greek referendum was, so the polls suggest strongly and as the prime minister, Alexis Tsipras, has acknowledged, a vote for Europe and even for continued membership of the euro itself. And if, after five years of the worst depression since the 1930s, the Greek public still recognises the merits of participating in Europe, we can be sure public opinion in most other countries contains a solid core of pro-European sentiment. This is for historical reasons (memories of the world wars), geopolitical (fears of Russia and of fallout from the Middle East), and also because people can see that the real problems ahead lie well beyond the capacity of single states to tackle – global warming, endemic conflict in Africa and the Middle East that is generating hugely destabilising movements of people.

But we should not push things too far, which is precisely what the euro, at least as administered until now, has done. For one thing, it has too often been presented as just a question of signing up to rules, as if central bankers and not the elected representatives of member nations should make the fundamental decisions in any kind of democratic confederation. For another, it has lacked any redistributive or solidaristic dimension. [Continue reading…]

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Germany won’t spare Greek pain – it has an interest in breaking us

Yanis Varoufakis writes: Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.

In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings.Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks.

To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well. [Continue reading…]

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Unless the EU can now save Greece, it will not be able to save itself

Jeffrey D. Sachs writes: The Greek catastrophe commands the world’s attention for two reasons. First, we are deeply distressed to watch an economy collapse before our eyes, with bread lines and bank queues not seen since the Great Depression. Second, we are appalled by the failure of countless leaders and institutions – national politicians, the European Commission, the International Monetary Fund, and the European Central Bank – to avert a slow-motion train wreck that has played out over many years.

If this mismanagement continues, not only Greece but also European unity will be fatally undermined. To save both Greece and Europe, the new bailout package must include two big things not yet agreed.

First, Greece’s banks must be reopened without delay. The ECB’s decision last week to withhold credit to the country’s banking system, and thereby to shutter the banks, was both inept and catastrophic. That decision, forced by the ECB’s highly politicized Executive Board, will be studied – and scorned – by historians for years to come. By closing the Greek banks, the ECB effectively shut down the entire economy (no economy above subsistence level, after all, can survive without a payments system). The ECB must reverse its decision immediately, because otherwise the banks themselves would very soon become unsalvageable.

Second, deep debt relief must be part of the deal. The refusal of the rest of Europe, and especially Germany, to acknowledge Greece’s massive debt overhang has been the big lie of this crisis. Everyone has known the truth – that Greece can never service its current debt obligations in full – but nobody involved in the negotiations would say it. Greek officials have repeatedly tried to discuss the need to restructure the debt by slashing interest rates, extending maturities, and perhaps cutting the face value of the debt as well. Yet every attempt by Greece even to raise the issue was brutally rebuffed by its counterparties. [Continue reading…]

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Greece seeks $59.2 billion bailout as Tsipras bows to demands

Bloomberg reports: In an 11th-hour bid to stay in the euro, the government of Greek Prime Minister Alexis Tsipras offered to meet most of the demands made by creditors in exchange for a bailout of 53.5 billion euros ($59.4 billion).

European and U.S. equity-index futures jumped on Friday after the proposal was submitted to creditor institutions late on Thursday. The package of spending cuts, pension savings and tax increases almost mirrored that from creditors on June 26, which was rejected by Greek voters in a July 5 referendum. It will face its first hurdle in the Greek Parliament on Friday.

Though Tsipras ceded ground, he insists long-term debt needs to be made more manageable to allow Greece to recover from a crisis that has erased a quarter of its economy. He has a growing support base that includes the U.S., European Union President Donald Tusk and the International Monetary Fund. [Continue reading…]

Alex Andreou writes: This is my initial reaction to the deal proposal by Greece: it is more austerity -harsh austerity at that – and many of the measures are recessionary. Distribution of the burden seems to me fairer than before. If the upside is access to a significant stimulus package (front-loaded), a smoothing of the measures (back-loaded) and substantial restructuring of debt, to make it definitively viable, it will probably be seen as worth it. It is certainly capable of being sold as worth it.

Essentially, everyone managing to keep their position/perks/income in the context of an economy which is in the middle of a death spiral, is meaningless. If the economy begins to recover, then things which were unbearable, become bearable. Austerity becomes a background noise, rather than a preoccupation and a progressive government will be able to offset the damage. It is a delicate balance.

Market confidence is a strange creature. There is a lot of money sloshing around at the moment, taken out of China which is in free-fall. Money which is bulging to be invested. All it takes is an intangible notion that Greece has hit the low point, for investment to return. Whether this package achieves that balance or not, will have to be assessed over time, as the detail of each measure becomes known and away from the adrenaline and hysteria of negotiation fever. [Continue reading…]

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The U.S. must save Greece

Joseph E. Stiglitz writes: As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reduction in history and unconditional aid from the U.S. in the Marshall Plan. And yet it refuses even to discuss debt relief. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid.

The facts prove otherwise: From the mid-90’s to the beginning of the crisis, the Greek economy was growing at a faster rate than the EU average (3.9% vs 2.4%). The Greeks took austerity to heart, slashing expenditures and increasing taxes. They even achieved a primary surplus (that is, tax revenues exceeded expenditures excluding interest payments), and their fiscal position would have been truly impressive had they not gone into depression. Their depression — 25% decline in GDP and 25% unemployment, with youth unemployment twice that — is because they did what was demanded of them, not because of their failure to do so. It was the predictable and predicted response to the austerity.

The question now is: What’s next, assuming (as seems ever more likely) they are effectively thrown out of the euro? It’s likely that the European Central Bank will refuse to do its job—as the Central Bank for Greece, it should do what every central bank is supposed to do, act as a lender of last resort. And if it refuses to do that, Greece will have no option but to create a parallel currency. The ECB has already begun tightening the screws, making access to funds more and more difficult.

This is not the end of the world: Currencies come and go. The euro is just a 16-year-old experiment, poorly designed and engineered not to work—in a crisis money flows from the weak country’s banks to the strong, leading to divergence. GDP today is more than 17% below where it would have been had the relatively modest growth trajectory of Europe before the euro just continued. I believe the euro has much to do with this disappointing performance. [Continue reading…]

The New York Times reports: As Greece hurtles toward a Sunday deadline for either reaching a bailout deal or risking a hasty exit from the eurozone, the one certainty is that its economy is already on the brink of collapse.

Businesses and humanitarian organizations are warning that the social and commercial damage now evident could become deeper and longer lasting if Greece and its international creditors cannot finally come to terms on a new bailout package.

“Greece already has a humanitarian crisis, and we’ll have to prepare for a harder aftermath if a deal collapses,” Nikitas Kanakis, the president of the board of directors of the Athens chapter of Doctors of the World, a health care charity, said on Wednesday. “I’m not sure how proud we should feel about letting social destruction return within Europe.”

With banks closed and the government virtually out of money, Greece has become isolated from the international economy — a big problem for a country that relies on imports for 65 percent of its goods. [Continue reading…]

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Greece finally admits €2bn gas pipeline deal with Russia

The Telegraph reports: Greece has admitted for the first time it is planning a €2bn gas pipeline with Russia.

The move is likely to worry the US, which has stepped up its involvement in Greece’s debt talks with international creditors over fears the cash-strapped country could drop out of the single currency and come under the influence of its Cold War rival.

Panayotis Lafazanis, Greece’s energy minister, said the move would be a key part of the country’s “multi-faceted” foreign policy and would create 20,000 jobs, the Financial Times reported.

Figures released by Greece’s National Statistics Service on Thursday showed unemployment at 25.6pc in April. [Continue reading…]

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Germans forget postwar history lesson on debt relief in Greece crisis

Eduardo Porter writes: As negotiations between Greece and its creditors stumbled toward breakdown, culminating in a sound rejection on Sunday by Greek voters of the conditions demanded in exchange for a financial lifeline, a vintage photo resurfaced on the Internet.

It shows Hermann Josef Abs, head of the Federal Republic of Germany’s delegation in London on Feb. 27, 1953, signing the agreement that effectively cut the country’s debts to its foreign creditors in half.

It is an image that still resonates today. To critics of Germany’s insistence that Athens must agree to more painful austerity before any sort of debt relief can be put on the table, it serves as a blunt retort: The main creditor demanding that Greeks be made to pay for past profligacy benefited not so long ago from more lenient terms than it is now prepared to offer.

But beyond serving as a reminder of German hypocrisy, the image offers a more important lesson: These sorts of things have been dealt with successfully before. [Continue reading…]

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Greece is the latest battleground in the financial elite’s war on democracy

George Monbiot writes: Greece may be financially bankrupt, but the troika is politically bankrupt. Those who persecute this nation wield illegitimate, undemocratic powers, powers of the kind now afflicting us all. Consider the International Monetary Fund. The distribution of power here was perfectly stitched up: IMF decisions require an 85% majority, and the US holds 17% of the votes.

The IMF is controlled by the rich, and governs the poor on their behalf. It’s now doing to Greece what it has done to one poor nation after another, from Argentina to Zambia. Its structural adjustment programmes have forced scores of elected governments to dismantle public spending, destroying health, education and all the means by which the wretched of the earth might improve their lives.

The same programme is imposed regardless of circumstance: every country the IMF colonises must place the control of inflation ahead of other economic objectives; immediately remove barriers to trade and the flow of capital; liberalise its banking system; reduce government spending on everything bar debt repayments; and privatise assets that can be sold to foreign investors.

Using the threat of its self-fulfilling prophecy (it warns the financial markets that countries that don’t submit to its demands are doomed), it has forced governments to abandon progressive policies. Almost single-handedly, it engineered the 1997 Asian financial crisis: by forcing governments to remove capital controls, it opened currencies to attack by financial speculators. Only countries such as Malaysia and China, which refused to cave in, escaped. [Continue reading…]

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Europe is blowing itself apart over Greece — and nobody seems able to stop it

Ambrose Evans-Pritchard writes: Like a tragedy from Euripides, the long struggle between Greece and Europe’s creditor powers is reaching a cataclysmic end that nobody planned, nobody seems able to escape, and that threatens to shatter the greater European order in the process.

Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium.

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc. [Continue reading…]

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Greece given until Sunday to settle debt crisis or face disaster

The New York Times reports: Frustrated European leaders gave Greece until Sunday to reach an agreement to save its collapsing economy from catastrophe after an emergency summit meeting here on Tuesday ended without the Athens government offering a substantive new proposal to resolve its debt crisis.

“The situation is really critical and unfortunately we can’t exclude the black scenarios of no agreement,” said Donald Tusk, the president of the European Council, warning that those possibilities included “the bankruptcy of Greece and the insolvency of its banking system” and great pain for the Greek people. Also looming ever larger was the prospect of Greece leaving the European currency union.

Mr. Tusk said that the government of Prime Minister Alexis Tsipras had until Thursday to deliver a new plan to Greece’s creditors.

“Until now I have avoided talking about deadlines,” Mr. Tusk, a former prime minister of Poland, told reporters after a day of fruitless meetings. “But tonight I have to say it loud and clear — the final deadline ends this week.” [Continue reading…]

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Europe is crumbling from the shockwaves unleashed by Wall Street in 2008

Yanis Varoufakis, the former finance minister of Greece, writes: In the past two years, the debate in Europe has focused exclusively on issues that sound technical and minor: will there be “conditionality” attached to the purchases of Italian and Spanish bonds by the European Central Bank? Will the ECB supervise all of Europe’s banks, or just the “systemic” ones?

These are questions that ought to be of no genuine interest to anyone other than those with a morbid interest in the interface between public finance and monetary policy. And yet these questions (and the manner in which they will be answered) will probably prove as important for the future of Europe as the treaties of Westphalia, Versailles or even Rome. For these are the issues that will determine whether Europe holds together or succumbs to the vicious centrifugal forces that were unleashed by the crash of 2008.

Even so, they are not issues that are worth expounding upon here. All they do is to reflect a tragic, underlying reality that can be described in simple lay terms without the use of any jargon whatsoever: Europe is disintegrating because its architecture was simply not sound enough to sustain the shockwaves caused by the death throes of what I call the Global Minotaur: the system of neoliberal capitalism centred on Wall Street, extracting tribute from the world after 1971.

It is quite obvious that the insolvency of Madrid and Rome had nothing to do with fiscal profligacy (recall that Spain had a lower debt than Germany in 2008 and Italy has consistently smaller budget deficits) and everything to do with the way in which the eurozone’s macroeconomy relied significantly for the demand of its net exports on the Global Minotaur. Once the latter keeled over in 2008, and Wall Street’s private cash disappeared, two effects brought Europe to its knees. [Continue reading…]

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Sixty years ago, half of German war debts were cancelled to build its economy

Nick Dearden wrote: Sixty years ago today [February 27, 2013], an agreement was reached in London to cancel half of postwar Germany’s debt. That cancellation, and the way it was done, was vital to the reconstruction of Europe from war. It stands in marked contrast to the suffering being inflicted on European people today in the name of debt.

Germany emerged from the second world war still owing debt that originated with the first world war: the reparations imposed on the country following the Versailles peace conference in 1919. Many, including John Maynard Keynes, argued that these unpayable debts and the economic policies they entailed led to the rise of the Nazis and the second world war.

By 1953, Germany also had debts based on reconstruction loans made immediately after the end of the second world war. Germany’s creditors included Greece and Spain, Pakistan and Egypt, as well as the US, UK and France. [Continue reading…]

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Staying shut is the best option for Greek banks — but time is running out

Leslie Budd, The Open University

The issue of liquidity in Greek banks is one of the most pressing now that the referendum is over. As widely reported, Greek banks are running out of reserves – even with capital controls in place since June 28 putting a €60 cap on the amount Greeks can withdraw from their accounts. There are a number of pressing issues that, if not resolved, could lead to a Grexit.

With a freeze on the amount of emergency assistance being provided by the European Central Bank (ECB), Greek banks remain unable to reopen. A short-term solution would be for the banks to issue IOUs backed by the Bank of Greece. This, however, would effectively be a parallel currency and would be the first stage of reintroducing the drachma. It would also be a big step toward leaving the eurozone.

The ECB is withholding the amount of emergency liquidity assistance (ELA) it is providing Greece in lieu of a bailout deal that will guarantee (in their eyes) Greek solvency. Pending the ECB stepping in to stabilise banks with more ELA, Greek banks will remain shut – and their reserves will quickly diminish.

The clear and present danger is that Greece’s creditors will maintain an attitude of “euro-hubris”. This attitude is displayed in an inflexible commitment to obeying fiscal rules irrespective of their socio-economic outcomes. Consequently, the ultimate price to pay for the Greek No will be a Grexit.

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Ending Greece’s bleeding

Paul Krugman writes: Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. [Continue reading…]

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