Greek government puts EU final offer to referendum test: Unclear if it will pass but democratic option commendable

The Greek government led by Alexis Tsipras and the Syriza party has turned the tables on the austerity obsessed European union. I t has announced a referendum on the final offer presented to it by the EU, the ECB and the IMF. This offer to extend the bailout by five months but on terms that require more austerity, further cuts to pensioners and the poor and middle classes and more belt tightening overall with no parallel debt relief  would allow Greece to keep the euro but further destroy its already shattered economy that previous EU and IMF conditionality had destructively wrought in Greece. It may well be that a majority of Greeks will be willing to accept this sado -masochistic policy as a price worth paying to stay but many Greeks may well reject it on the perfectly sensible calculation that over the long haul they will be better off outside the eurozone and with their own currency and central banking system capable of financing a substantial domestic stimulus program. Freed of the onerous burden of excessive and foolishly imposed IMF conditionality with a chance to lengthen debt repayment terms and write off a substantial portion of the debt Greece could very well do much better than the high priests of fiscal orthodoxy claim. In any case whatever the outcome it will be a democratic one which considering the size of the democratic deficit in Europe is a major positive accomplishment.

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Further views on Greece as signs of domestic opposition from pensioners and others badly affected by proposed deal’s likely measures

There is no doubt that a resolution of the Greek crisis is a desirable objective but there is also no doubt in my mind that increasing austerity in Greece on the backs of hard pressed pensioners  and the middle classes is a very bad idea. As Larry Elliot and others including me have argued austerity is the worst possible policy because it undermines aggregate demand and reinforces a debt deflation spiral. It beggars belief that the creditors are still insisting on further austerity and display such extraordinary historical ignorance of the 1930s and the massive failure of such policies during the last great depression.

There are a number of voices and opinions worth reading on this question. Have a look at this article: by a Princeton based professor of international economic policy on the pitfalls of overdoing austerity. The author Professor Ashoka Mody is no radical but a very mainstream professor and although he proposes a very minimal primary surplus over the next three years of 0.5 % of the GDP,whereas I would propose running a stimulative infrastructure focused deficit, he nevertheless appreciates the importance of growing the Greek economy and also proposes substantial debt forgiveness as much as 50 % and repayment over forty years of the rest.

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Greece finance minister releases full text of his statement on Greek negotiations as deal looks more likely

By going to this address the reader will find Mr.Varoufakis’s views as he presented them to the EU negotiating group. They are comprehensive, will be controversial to some but very credible and pursuasive to many others.

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Greek Prime minister makes reasoned defense of Greece’s pension system:article in German paper Der Tagesspiegel

The Greek drama is approaching the crisis stage of the expiry of the current bailout and the unwillingness of its IMF. and EU creditors to reach a compromise deal to release funds to Greece in order to prevent it from defaulting on its debt and to reduce the amount of austerity that has been imposed upon Greece. As part of this drama, the Prime Minister of Greece has very sensibly written an article for the German newspaper Tagesspiegel which presents quite clearly and informatively the Greek point of view about its difficulties and about why it feels it cannot sensibly impose further austerity cuts on its pension system. I think the Prime Minister’s statement is an important contribution to the debate and so courtesy of the Government of Greece which has translated the document into English I reproduce it in whole below. As you read it keep in mind that the original vision of the IMF and the European project was to ensure peace and stability through the promotion of trade and more equal development and in the case of the IMF to act as an international banker of last resort to assist countries with debt and exchange rate difficulties to grow their way out of them not through austerity but through accommodation and stimulus.This was intended to be financed by the surplus countries as part of the responsibility of the stronger to protect the weaker nations in order to promote peace and development. People should go back and read the history of the original Bretton Woods meeting which founded the IMF and World Bank and the debate between John Maynard Keynes, his Canadian allies and the Americans.
Prime Minister Alexis Tsipras’ article in Der Tagesspiegel:  German taxpayers are not paying for Greek pensions

June 18, 2015 | categories : Articles and Statements, Prime Minister

During a negotiation, an exchange of arguments is legitimate so long as there is sincerity and good faith between the parties.
Otherwise, when the dialogue is ongoing with no end in sight then the methods used are akin to those described by the great German philosopher Schopenhauer in “The Art of Always Being Right”!
For example, it is unfair to selectively use statistical indexes — even if they are endowed with the prestige of distinguished economists, such as Olivier Blanchard– to produce unsupported generalizations that obscure reality.
As such, I’d like address a popular myth that the average German taxpayer has been led to believe.
Namely, that he is paying for the wages and pensions of the Greek people. This is absolutely false.
I don’t deny that our social security system has problems. But it’s important to point out the root of the problem and how it can be resolved. There were many cutbacks in recent years that only served to further the recession and make the problem even worse.
It may sound somewhat suspect that 75% of the primary expenditure is used to pay for salaries and pensions. If it sounds unbelievable—that’s because it is: only 30% of the primary expenditure concerns pensions. Moreover, it’s important to note that wages and pensions are not the same thing, and assessing them together is a serious methodological error.
The comparison with Germany’s pensions is also rather misleading. According to the Ageing Reports (2009, 2015), pension expenditure in Greece rose from 11.7% of GDP in 2007 (slightly higher than the 10.4% in Germany) and reached 16.2% in 2013 (while in Germany the numbers remained almost stable).
What caused this increase? Was it due to an increase in pensioners or an increase in pension amounts? The answer is: Neither. The number of pensioners has essentially remained unchanged and pensions have shrunk dramatically due to the implemented policies.
Simple arithmetic is sufficient to reach the conclusion that the increase in pension expenditure as a percentage of GDP is entirely due to a decline in GDP (denominator), and not to an increase in expenditure (the numerator). In other words, GDP declined faster than the pensions.
Concerning retirement ages, could it be that in Greece employees retire much younger?
The truth is that the retirement age in Greece is 67 years for men and women, i.e. two years more than in Germany.
The average exit age from the labor market for men in Greece is 64.4 years, i.e. eight months earlier than the 65.1 years in Germany, while Greek women retire at 64.5 years, about 3.5 months later than German women who retire at 64.2 years.
I wanted to highlight the above –again, not to deny the ailments of our social security system- but to prove that the problem is not one of supposed generous pensions.
The most significant disruption to the pension funds is due to dramatically lower revenues in recent years. These were caused by the loss of assets due to the PSI (haircut of Greek bonds held by the Pension Funds, totally approximately 25 billion euro) as well as – and most importantly – by the sharp drop in contributions that resulted from soaring unemployment, and the reduction in wages.
In particular, during the period 2010 – 2014, approximately 13 billion euro were removed from our social security system through a series of measures with a corresponding reduction in pensions and allowances at a rate of about 50%, a fact which has exhausted any margin for further reductions without undermining the operational core of the system.
Moreover, we must understand that the system is being mainly pressed on the revenue side and less so on expenditures, as is often implied.
I would also like to call attention a matter that is unique to the Greek crisis. The social security system is the institutionalized mechanism of intergenerational solidarity, and its sustainability is a main concern for society as a whole. Traditionally, this solidarity has meant that young people, through their contributions, fund the pensions of their parents. But during the Greek crisis, we’ve witnessed this solidarity being reversed as the parents’ pensions fund the survival of their children. The pensions of the elderly are often the last refuge for entire families that have only one or no member working in a country with 25% unemployment in the general population, and 50% among young people.
Faced with such a situation we cannot adopt the logic of blind and horizontal cuts, as some have asked us to do, which would result in dramatic social consequences.
On the other hand, we are not indifferent to the present condition of our social security system, and we are determined to ensure its sustainability.
The Greek government submitted specific proposals concerning the social security system’s reorganization. We agreed to the immediate abolition of the early retirement option that increases the average retirement age, and we are committed to moving forward immediately with the consolidation of the pension funds, thus reducing their operating expenses and restricting special arrangements.
As we analyzed in detail during our discussions with the institutions, these reforms function decisively in favor of the sustainability of the system. And like all reforms, their results will not be apparent from one day to another. Sustainability requires a long-term perspective and cannot be subject to narrow, short-term fiscal criteria (e.g. reducing expenditure by 1% of GDP in 2016).
Benjamin Disraeli used to say that there are three kinds of lies: lies, damned lies and statistics. Let us not allow an obsessive-compulsive use of indices to destroy the comprehensive agreement that we prepared over the previous period of intensive negotiations. The duty rests on all of our shoulders.

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US unemployment continues to improve; Japan grows and Greek crisis continues: Amartya Sen blasts austerity in New Statesman

Let us begin with the last item. Amartya Sen the Nobel prize winning economist with deep humanist convictions whose course on theories of value and distribution I followed while I was a grad student at the LSE has written an excellent article published June 5, in the New Statesman that grows out of a speech he gave to the Keynes circle at the Charleston festival in Firle East Sussex close to where Keynes wrote much of his General Theory and his friends Vanessa Bell  and Duncan Grant painted and Bloomsbury bloomed in which he demolishes the European and I regret to say Québec obsession with austerity. In so doing Sen who is a very rational moderate pragmatic voice in economics with an outstanding intellect has reminded the political establishment that they are repeating almost all of the errors of the 1930s. It needs apparently to be often repeated austerity is the worst policy to be chosen following a sharp business cycle downturn and financial panic and crash. As he puts it: Turning to the management of debts, suddenly the idea of austerity as a way out for the depressed and heavily indebted economy became the dominant priority of the financial leaders of Europe Those with an interest in history could easily see in this a reminder of the days of the Great Depression of the 1930s when cutting public expenditures seemed like a solution, rather than a problem. This is of course where Keynes made his definite contribution in his classic work the General Theory in 1936.Keynes ushered in the basic understanding that demand is important as a determinant of economic activity, and that expanding rather than cutting  public expenditure may do a much better job of expanding supply and activity in an economy with unused capacity and idle labour.Austerity could do little, since a reduction of public expenditures adds to the inadequacy of private incomes and market demands , thereby tending to put even more people out of work. Of course I have been arguing Keynes is largely correct  for years and I have joined the chorus of voices that includes two other Nobel prize winning economists Joseph Stiglitz and Paul Krugman and a large number of other leading Keynesians and post Keynesians who have gone to great lengths to explain why austerity is the wrong policy, how and why it is so damaging and how dangerous it is for both economic recovery and political stability. But as Krugman has pointed out it is now somehow fashionable for the very establishment that brought us the worst crash, crisis and recession since the great depression to repeat their totally unscientific assertion that somehow austerity is the right policy and that it will work to restore prosperity by lowering real wages through deliberately prolonged unemployment. The policy has been shown not to work. The last time it was used it led to the prolonging of the great depression, the rise of Hitler and fascism and the Second World War. The current high unemployment in Europe and the crisis in Greece where unemployment is 25 % are facts on the ground which refute the claims of the classical economists whose advice the neo-liberal politicians seem to be following. Sen points out how profound the mess that the financial sector and its allies in government have created  in Europe. A similar mess was created in the United States and to a more limited degree in Canada but fortunately here the progressive influence of Barack Obama constrained as it was by the political weight of the Republicans and the Democratic party’s own fiscal conservatives was sufficient to implement a stimulus program which actually worked to reverse some of the damage. Canadian policy was similarly constrained but for a period of time the Harper Conservatives initially did the right Keynesian thing despite their own preference for fiscal conservatism. Hence the latest data on U.S. unemployment shows a rising participation rate , an above expectations level of new jobs created some 288000 last month and a significant decline in the broadly defined measure of unemployment to 10.6 % versus the headline rate of of 5.5 %. Not a perfect picture but a much improved one in comparison with the situation that prevails in Europe where France is still stuck in high unemployment the eurozone overall rate is still very elevated at 11.1% and the Greek rate is 25.4 % after years of imposed austerity. The rate for the first quarter in Greece is 26.6 %. Youth unemployment in Greece is more than double this rate.

Other recent unemployment  rates according to Eurostat include Germany 4.7 %; UK 5.4%;Poland 7.9%; Belgium 8.5 %Ireland 9.7 %; France 10.5 %; Italy 12.4 %; Portugal 13 %; Spain 22.% ) The Greek situation may be closer to a temporary compromise resolution. But the stubborn insistence of the EU, the IMF and The European central bank on further irrational counter- productive austerity is a major stumbling block to a solution. Meanwhile Japan whose debt to GDP ratio is over 200 % and has a policy of negative interest rates has just registered 3.9 % growth in its GDP. Its rate of unemployment is 3.3 % .

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Jacques Parizeau passes away: Québec mourns builder of modern Québec

Jacques Parizeau has died at age 84. His death was announced by his wife Lisette Lapointe earlier today. Parizeau, whether one agreed with him or not about Québec sovereignty and the fracturing of Canada, was an intellectual with sophisticated technocratic talents and European sensibilities who has to be seen as one of the major builders of the modern Québec state including its enormous pension fund, the Caisse de dépôt et placement and its social democratic welfare state, as well as the notion of maîtres chez nous championed by Québec nationalists of every stripe. The largely federalist English speaking minorities of Québec were the inevitable victims of this political movement and Parizeau regrettably in the bitter moments of defeat following the 1995 referendum had crossed the line in blaming “money and the ethnic vote” for the defeat of the yes side. This was , of course a very divisive false claim that contributed to much ill will in Québec following the remarks and was a wound that never completely healed among the minorities that compose the English and French speaking federalist community. Some of these tensions resurfaced in the controversial debate over the Québec charter of rights that played a significant role in the last Québec election. I first learned about Parizeau and his decision to join the sovereignty option directly from René Lévesque when I chaired a conference on International affairs at the University of Manitoba to which I had invited Lévesque to appear in January 1968 as one of the featured speakers on the topic of Québec and Canada. He told me he was in the process of recruiting a very important talented economist to join his movement and that he would be making a major contribution to his credibility in the months to come.This , of course, turned out to be very true as the combination of Lévesque’s charismatic passion and Parizeau’s powerful cool intellect and his business connections was an irresistible attraction for many Québecers in the years to come. Parizeau as Premier of Québec seven years after Lévesque’s death with the brilliant oratory of Lucien Bouchard brought Québec to the very brink of a referendum victory in 1995. Had he won it is claimed that he would have immediately proclaimed the independence of Québec with the approval of France who would have sponsored Québec’s membership in the European union. Fortunately despite some 80,000 federalist votes that were not counted, the yes side lost by the narrowest of margins and the sovereigntist moment passed for the next twenty years.

Parizeau will go down in history as a great Quebecer, a man who showed that a modern intellectual with technocratic talents can make a major contribution to the governance of his society. Whether or not he will emerge as one of the founders of a new sovereign country must await the outcome of any future referendum and the verdict of history. My condolences to his family and friends.

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The Passing of Abe Rotstein a Polanyi pioneer and leading member of the U of Toronto nationalist political economy school: Britain enters deflation

Abe Rotstein one of Canada’s outstanding political economists and a leading founder of the Canadian nationalist school of political economy centred in Toronto  passed away last month at the age of 86. The Globe and Mail had a full page obituary and a large photograph of Abe in his prime as one of the co-authors of the Watkins Report on foreign ownership in Canada.He was a central figure along with Walter Gordon , Mel Watkins and others in the renaissance of Canadian political economy during the Trudeau era. Abe was an outstanding humanist economist who won the respect of many generations of students and analysts and activists.  He was one of the examiners at my Ph.D defense and we had a spirited discussion about issues of interpretation. His questions were thoughtful and probing and I never forgot the encounter. He made a major contribution to economic thought and public political economy in Canada which will live on.My condolences to his family and friends. He was also a Polanyi scholar and strongly influenced by Karl Polanyi’s work.The Globe obituary explores this connection in great detail.

Kari Levitt Polanyi , Polanyi ‘s daughter has had a long and distinguished career at McGill university in Montréal and played a significant role in the revival of Canadian political economy and economic nationalism .

The passing of Rotstein comes at a time when there is a renewed interest in nationalism as a reaction to hyper globalization which has had very negative consequences for workers’s salaries and non wage benefits, inequality and employment security.This was clearly a major factor in the recent British election which will continue to be a hot issue in the years to come. It may well play a role in the upcoming Canadian election also.In Britain the latest inflation data reveals that year to year inflation in Britain April 2014 to April 2015 was actually negative by 0.1 % .

So deflation has happened for the first time in more than fifty years. This deflation is the direct consequence of the severe recession that followed the crash, the anti-Keynesian austerity policies which the British Tories have foolishly adopted and the excessively ready acceptance of hyper globalization which the British economic leadership have embraced.The event has been greeted by key spokespeople and some commentators as posing no serious threat. Time will tell us whether that is actually true. It may turn out to be more than a short term event with more serious consequences for the income earners and the economy than the establishment believes.

It is also once more proof of the proposition which I have been arguing for years namely that quantitative easing which involves temporary greater monetization of the debt through the central bank purchasing more of it does not necessarily lead to inflation. Rather it depends upon the circumstances that prevail in the economy. If a slump is deeply rooted and deflation a tendency QE does not threaten inflation. Friedman and the quantity theory of money is wrong in certain circumstances.

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