Posts Tagged ‘troika’


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Thomas Piketty, in an interview with the German newspaper Die Zeit, is the latest to recognize an inconvenient historical truth: in 1953, Germany was able to negotiate a large (50-60-percent) reduction in its outstanding foreign debt (owed to many countries, including Greece).

ZEIT: So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?

Piketty: Exactly. After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.

Mike Bird argues that there are holes in Piketty’s argument. But his main source, a discussion paper by Timothy W. Guinnane, actually shows that the main principles guiding the 1953 agreement—especially the “the premise that Germany’s actual payments could not be so high as to endanger the short-term welfare of her people or her long-term ability to rebuild a shattered economy and society”—run counter to the austerity measures demanded by the troika in its handling of the current debt crisis in Greece.

There are, of course, significant differences, which Guinnane also explains:

Surely the London Agreement’s relative generosity reflects not abstract notions of justice, which can be applied to any situation on the basis of some sort of “precedent,” but two concrete facts of the German case. First, increasing tension with the Soviet Union had led to a strong desire to rebuild a sound, democratic Germany. Harsh repayment terms would not serve that end. When the U.S. decided to forgive much of Germany’s Marshall plan debt, in effect treating it on a par with other European recipients of that aid, it was just recognizing that what in 1945 had been a defeated enemy was now a valued ally.

A second point was also something Keynes insisted upon as a reason to oppose reparations. Prior to World World I, the German economy was central to the European economy as a whole; a healthy Europe could not exist alongside a sick Germany. The same held true after World War II. The German economy was so important to the world economy, and to Europe in particular, that the country was in a strong position to demand concessions that would enable her to return quickly to her traditional role as the engine of the European economy.

Then as now, the negotiations over the terms of repaying outstanding foreign debt have nothing to do with “abstract notions of justice,” or for that matter economic rationality, but with pure and naked power.

But the fact that Germany was able to successfully renegotiate is external debt in 1953, on terms that assumed “that reducing German consumption was not an acceptable way to ensure repayment of the debts,” demonstrates that historically there have been many ways of repaying debt.

The current hard line on Greece turns out to be the exception to that historical truth.


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Populist Race

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Seven years after the global financial crash, we’re still in the midst of a full-scale war of finance.

On one side of the Atlantic, U.S. Court of Claims Judge Thomas Wheeler found that former AIG head Hank Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its “unduly harsh treatment of AIG in comparison to other institutions” that was “misguided and had no legitimate purpose.” The ruling basically confirmed the Fed’s right to create a gigantic bailout of Wall Street but denied its ability to actually determine the use of the funds by the “taking of equity” in essentially worthless financial institutions like AIG.

Finance thus continues to win the war in the United States.

And, as Ambrose Evans-­Pritchard [ht: sw] explains, finance is engaged in all-out war in Europe.

Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.

The spectacle is astonishing. The European Central Bank, the EMU bail­out fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.

They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits ­ even if they degrade their own institutions in the process.

The European Central Bank is actively inciting a bank run in Greece and threatening to throw that country out of the euro zone if it resists the demands of the creditors, represented by the troika, without ever seriously considering the proposals put forward by the democratically elected Syriza government.

The truth is that the creditor power structure never even looked at the Greek proposals. They never entertained the possibility of tearing up their own stale, discredited, legalistic, fatuous Troika script.

The decision was made from the outset to demand strict enforcement of the terms agreed in the original Memorandum, which even the last conservative pro­Troika government was unable to implement ­ regardless of whether it makes any sense, or actually increases the chance that Germany and other lenders will recoup their money.

At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.

At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.

The troika, in other words, is acting like a unified debt collector, and is willing to go so far as to threaten to topple a democratically elected government to set an example that, in Greece and elsewhere in Europe, finance is willing to do anything and everything to win the war.


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Here Comes the Troika

Posted: 16 February 2013 in Uncategorized
Tags: , , , ,


Apparently, the Portuguese are playing a new austerity-era card game: Here Comes the Troika: Once Upon a Time in Portugal-land [ht: sm].

The rules:

Hurry up!

Win the elections and govern all by yourself

Put the money in offshore accounts

If the country goes bankrupt. . .someone has to pay!