5 Reasons Greece and the Rest of the Eurozone Are On the Road to Hell

http://www.alternet.org/economy/155915/5_reasons_greece_and_the_rest_of_the_eurozone_are_on_the_road_to_hell/

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To paraphrase Pete Townsend, meet the new chaos, same as the old chaos. Greece and the entire eurozone are continuing down a road to hell where financiers are the highway robbers and ordinary people are attacked at every step. Here's why.

1. Pretend Politics. Prior to the June 17 vote, Greek voters were intimidated with a massive number of threats from Germany and elsewhere of what would happen if they didn't vote "the right way" (i.e. anybody but the "radical leftists" in Syriza who would have negotiated harder with the financiers). The conservatives barely led the vote count from their main anti-austerity rival. Yet New Democracy leader Antonis Samaris suggested in his victory speech that the results reflected a vote for "growth." There is more than a touch of Orwell at work when you can redefine the kinds of programs the Greeks will be forced to swallow as "growth policies." Germany's suggestion to cut the minimum wage, for example, will only take more money out of the pockets of regular people, which, as Keynes taught us, further weakens the economy.

2. Nothing Fundamental Will Change. In the meantime, nothing fundamental will change in Greece. It can't, given that the circuits of credit in Greece are so badly damaged that even efficient, profitable firms have been cut out of not only the capital markets, but also out of the international markets (their suppliers will no longer accept the Greek bank guarantees, without which Greek firms cannot import raw materials, as economist Yanis Varoufakis has pointed out). I asked Varoufakis why those profitable Greek businesses don't simply shift their deposits to, say, a German bank, in order to get "reputable" letters of credit, and his response was that a German bank would simply not issue a guarantee on these businesses if they are registered in Greece.

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3. Wrong Diagnosis, Deadly "Cure." In the eurozone we have a solvency problem and a crisis of people not having enough money to spend on goods and services, which stalls the economy. Unfortunately, within the European Monetary Union (EMU) these twin crisis ultimately fall entirely in the realm of the issuer of the currency -- the ECB -- and not the users of the currency -- the euro member nations. So without the ECB, directly or indirectly, underwriting the currency union, solvency is always an issue, whether that be Greece, Portugal, Spain, Italy, or indeed, Germany. Likewise deficient spending power has been exacerbated by the austerity imposed as a condition of the ECB's help. The patient (Greece) can't recover under these circumstances, and the "cure" will only cause more agony.

4. Flaw in the Euro Architecture. Nobody seems to want to acknowledge that the eurozone has a fundamental architectural flaw. Right now, there is no fiscal authority over member nations that can adequately respond to economic crises. This has been the story of Greece, the rest of the European periphery and now the disease is spreading into the core (Dutch April retail sales were down 11 percent year-over-year, so this is no longer a "north vs south" problem in the eurozone). A good economy with rising public deficits and ECB support to keep it all going isn't even a consideration at this point. The eurozone apologists have painted themselves into an ideological corner, as Europe's banking system continues to suffer from the throes of a massive bank run. The Greek election results won't change that fact.