Electron Dance
6Jul/15Off

The Farfield: OXI

The Farfield is an occasional series where I write about something other than gaming.

Why do I talk a lot about Greece on Twitter?

  • Save the cheerleaders, save the world. When Greece was on the verge of defaulting a few years ago, instead of letting the creditor banks take the hit, the EU ran in to save them. But it was a broader assault than it might seem: saving Greece was also a way to neutralise a domino effect as Portugal, Ireland, Spain and Italy had similar problems. Bank exposure to these countries was reportedly around €1 trillion. Recently economist Ken Rogoff declared: “I believe that Ireland would have been far better off today if the Government had not taken over so much of the bank debt, and instead allowed bank creditors to absorb a significant loss.”
  • The Parable of the Lazy Greek. So now private banks were off the hook and Greece had to face the ECB, IMF and EU instead (the “Troika”). The story of reckless lending was gradually replaced with the image of the Lazy Greek who had dined out in style on the backs of others, then refused to pay the money back. The Lazy Greek story has been sold so strongly that the German public, for example, would not support any government that agreed to go easy on Greece.
  • The Parable of Austerity. There’s been a broad push since the financial crisis to rewrite the story of bank recklessness as governments spending beyond their means. This morphed into a political romance with austerity, the idea that governments must spend less right now. There is substantial evidence that inflicting austerity on a troubled economy makes things worse. In a nutshell, if the public feels insecure about the future and stops spending, then the government should fill that spending gap to help the economy recover. Austerity in times of strife is a vicious circle; if a government tries to save money, it damages the economy, which reduces tax receipts, thus undermining the whole exercise. Even the size of “fiscal multipliers” – which measure the impact that changes in government spending has on the economy (GDP) – has become a political football. The previous UK coalition government bolstered the case for austerity with research that showed that large government debt was economically destructive - but the data later turned out to be in error and showed no such thing. Further, the IMF just last week published a report arguing that Greece needs to be cut some slack and a good portion of its debt written off. After six years of austerity, Greece has lost a quarter of its GDP.
  • Austerity victims show little solidarity. There is another reason why Europe does not want to give in to Greece: the political consequences elsewhere in Europe. Because other austerity victims have given in to pressure (such as increasing retirement ages), they want Greece to fall in line rather win a special deal. If Greece does win concessions from Europe, expect serious things to happen in Spain and Italy.
  • Driving up Anti-EU sentiment. The fact that Europe is actively punishing a member state (particularly its poorest citizens) is not going unnoticed. The European Central Bank (ECB) offers support to avert a bank run with a programme called the ELA (Emergency Liquidity Assistance) but the ECB pulled the rug out last week, forcing Greece to close its banks. Last week Paul Mason wrote "The European Central Bank has proved, yet again, that it can crash an economy if it wants to." And today, the ECB turned up the heat some more. This is not the first time we've seen the ECB push buttons in this way, go back and visit Cyprus circa 2013. The contempt the EU has for some of its members is pumping up distrust of the European project. Consider this is happening at a time when the UK is going to hold an in-or-out referendum on EU membership in the next couple of years.
  • Russia. Some think if Greece leaves the euro it may seek assistance from Moscow which, considering tensions over interventions in Ukraine, has wider political implications. The US does not want to see Greece leave the Eurozone.
  • Οχι. The referendum result rules out Greece signing up to the latest offer from the Troika. If it remains politically impossible for European governments to give ground, then Greece will likely default and leave the euro. This is why the Sunday referendum was labelled a referendum on euro membership.
  • The euro becomes reversible. The EU has always described euro membership as irreversible and the ECB would “do anything it takes” to save the currency. If Greece leaves the euro – irrespective of the terrible economic damage that would inflict – it would be proof positive that these boasts are untrue. It would undermine the currency and eyes will once again scrutinise Spain, Italy, Portugal and Ireland which continue to struggle with debt burdens and austerity.
  • A perfect storm. Everyone is talking down “contagion risk” – that Greece blowing up will hit markets hard – but that’s what politicians and central bankers do, they try to talk the market down from the ledge. But some fear that no one got to grips with the financial crisis of 2008 and that the real reckoning is still to come; that particular can was just kicked down the road. Greece leaving the euro at the same time that China is entering its own long-awaited financial crisis may ignite the touchpaper for a new global conflagration.

This is why I can't stop commenting on Greece. It's kind of huge.

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Comments (10) Trackbacks (0)
  1. Dragging the topic back to games: More people really should play The Sea Will Claim Everything.

  2. Gah! I have a copy of that but still haven’t played it.

  3. I… kind of wish I knew more about all this but I wouldn’t even know where to start, and I’d probably find it hugely depressing as I usually do whenever I dip my head into politics.

  4. Don’t worry Gregg, stick with me and I’ll tell you how to vote.

  5. I’m kind of fascinated too, but I don’t have much time to devote to it. So busy lately.

    What worries me most is what Syriza’s apparent capitulation could mean not only for Greeks, but also for the organised left in Europe. Syriza were the big hope for forging a different path, a coalition group that included centrist and radical elements. What now? Podemos? Will ordinary Greeks stand up and reject their government’s capitulation? I have no idea.

  6. I’ll be honest Shaun, I found the developments this weekend pretty grim. I was a big supporter of Syriza as I hoped it might change some of the bigger narratives in play – but I think they failed. What they did do, however, was totally unexpected. I think they smoked out the dark heart of the European project. I don’t think I can ever look at the European Union the same after this particular weekend.

    But we should also be a little fearful about what happens next. No one ever just “gives in” when lives are at risk. If the Greece parliament really does become a puppet government, I don’t think the youth will remain pacifist about the situation indefinitely. And after that… it’s difficult to put that particular toothpaste back into the tube.

    Of interest, particularly in reference to the behaviour of Greece’s fellow austerity victims: Yanis Varoufakis interview at The New Statesman.

  7. Have you read this?

    http://www.forbes.com/sites/francescoppola/2015/07/14/dr-schaeubles-master-plan/

    “I try and talk economics in the Eurogroup” – the club of 19 finance ministers whose countries use the Euro – “which nobody does.”

    Telling.

    I think this really has made quite clear the level of regard with which participatory democracy is held within the upper echelons of the EU, and just how fragile modern democracy is without forces to counterbalance capital and finance.

  8. I hadn’t read that, no. It seems that state democracy has always been incompatible with integration. I mean, the EU parliament has a democracy that trumps state democracies on many issues. One of the problems with Greece is that it is an issue is competing democracies: some countries can’t give in to do called Greek demands because of their individual electorates. Varoufakis’ point that Spain et al were their worst nightmares is a case in point.

    The euro was never going to work without fiscal union, a sacrifice of sovereignty. I didn’t know that 20 years ago. I was one of those who were swept away with the beauty of integration, being part of a larger socialist structure. But the euro was a ticking time bomb and was always going to kill a member state at some point. God do I know that now.

    But there’s also clearly a corruption in the heart of its project, a few personalities pushing agendas without checks and balances.

    I have to laugh whenever someone argues “rules are rules” because, like Varoufakis has said, they’ve been making this up as they’ve gone along.

  9. Yeah, and there’s probably something telling in the way Varoufakis assumed that Spain, Portugal and Italy might be natural allies… a country’s leadership is not its people.

    I’m not sure that the EU was ever thought of as a socialist structure by any of its architects? Social democratic, perhaps.

    Being a regular reader of Private Eye, the corruption, waste, stifling bureaucracy and counter-democratic principles at the heart of the EU is something I’m depressingly familiar with.

    I had for years been vaguely behind EU membership for two reasons: firstly economic cooperation between nations reduces the risk of armed conflict, and secondly it meant a large economic bloc to counter the US. I’m a lot more ambivalent now, though I’m not clamouring for Britain to leave the EU either. I mean, it’s a shower of bastards wherever you look, and it’s bloody hard to work out just which shower is going to drench you in the more odious fluid.

    Anyway: where’s Jonas? Very interested to read his thoughts on all this. (I haven’t looked on twitter…)

  10. Yeah, there’s lots of good in the EU. But Hells Bells you won’t get me to sign up to a fiscal union after this debacle, let alone the broken halfway house of the eurozone.

    I think Jonas called Tsipras a “class traitor”. He was expecting this kind of outcome from the start.


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