M. Khazin, “Relevant notes on Greece”

Source: http://worldcrisis.ru/crisis/1819611

Translated by Mikhael

A brief overview of post-election situation in Greece. This is a translation of the Russian version, there is also a published Greek translation

There is a new government in Greece. A left-wing government that has a rather complicated relationship with the “sacred right of private ownership”, particularly when it comes to Greek sovereign debt. In other words, it is leaning towards triggering a full blown debt crisis in the EU (and possibly impacting the entire world). But, as we have been taught back in 2008, a crisis doesn’t just bring problems, it also unveils new opportunities. That’s why it is important to have a more in-depth understanding of Greek politics, in particular to be able to recognize who will benefit from these new opportunities. To be able to analyze the situation correctly, it is necessary to explain one very important point crucial to understanding the events that are unfolding in the EU today.

Debt accumulation was a “reaganomics” instrument used to stimulate consumer demand, first in the USA and then, starting in 1981, across the entire world. In particular, by year 2008, the average household debt in the USA increased more than twofold when compared to 1980 (from 60-65% of available income to over 130%). The situation is a little better in the EU, but in Europe state budgets were used to stimulate consumer demand, resulting in higher national debts. The USA is quickly catching up in that department.

These debts were serviced using refinancing, supported by gradual decrease in borrowing costs (the minimum interest rate set by the Federal Reserve has gone from 19% in 1980 to just about 0% in 2008). Today it is impossible to repay these debts even with zero percent interest rate on refinancing without sharply declining the standard of living for general population. A twofold decline in the EU and the USA would be necessary. But that is unacceptable, which means that these debts need to be somehow liquidated. Either written off or dealt with at the cost of high inflation rates.

I will say this once again: it is impossible to pay off the debt that has been accumulated within the world economy, it simply does not generate financial flows on a scale required for this task. For example, the real average wage in the USA has not changed since 1950’s. All the increased spending happens at the cost of increased household and national debt, and declining savings. This problem must be solved, or it will resolve on its own – through a major economic crisis.

And this problem is already being dealt with. The first experiment was the restructuring of banks in Cyprus. It tested depositors’ reaction to the banks’ refusal to return their funds (or, rather, part of the funds). The experiment was a success – disgruntled depositors have not been able to win a single court case so far. It is possible that some of them were able to settle their claims informally, but such information is not openly available.

However, there is also the problem of national debt, which, in many ways, is a lot more complex as it is no longer about disgruntled ordinary households who can’t really hold the banks responsible, but instead it is going to affect major banks and financial institutions. For this very reason, any actions related to national debt need to be thoroughly planned and tested to avoid any risk. And this is where it would be fitting to recall a phrase from an old comedy: “the most dangerous experiments involve the least valuable members of the crew”.

Note this – when Haider got into Austrian government, Austria was ostracized in EU. A similar reaction could be observed when Jean-Marie Le Pen took part in the final round of presidential elections in France. These were classic right-wing politicians who would be considered mainstream in 1950’s. What about now? Left-wing party wins elections in Greece (with right-wing joining the ruling coalition), but we see no reaction from the EU political establishment, they are silent.

There is also another interesting circumstance. World debt accumulation was made possible by US dollar emission. This emission was supposed to be backed up by new assets, but, since 1990’s, when all former Soviet assets were finally “digested”, nothing new of any considerable value emerged in the world. Therefore, the usual mechanisms of redistribution of the emitted currency no longer work – this is another aspect of falling household incomes in most countries across the world. This brings us to an important question: how can the US be forced to share with the rest of the world?

“Old” elites, who benefited from emission income redistribution for many years, cannot do it – this must be done by new political figures who are currently part of opposition elites. There are minor exceptions such as Hungary. This small (for now?) country in Eastern Europe openly used blackmail when it gave its government control over the central bank. This decision was later revoked, but it is nearly impossible to get the full details of the deal through media resources. Greece has now become the second country in the EU where opposition elites came to power.

I suspect that this particular country will be “the least valuable member of the crew” which will be used to test mechanisms for writing off national debt. Hungary would not be a good choice for this – the government has too much support and its position looks pretty solid. It would be very hard for the EU to force its policies in Hungary.

Let’s reiterate the main point: there is a very high probability that EU leadership wants to use Greece as a “guinea pig” to test national debt write off mechanisms. Greece will get all the “cuts and bruises”, while the rest of the EU will get invaluable experience in minimizing negative consequences of an operation that will eventually have to take place in every country across the world. The main objective of the new Greek government is to get the highest possible compensation for participating in this “experiment”.

I will not be giving advices to the new Greek government – forewarned is forearmed. Especially considering that I do not specialize in politics, I am an economist. But it is necessary to take into account certain developments which might end up being very important. First of all – since opposition elites in the EU will be gaining more and more strength, there is no need to be worried about serious, on the edge of blackmail, confrontation scenarios. They will find their way into world politics one way or another, if not tomorrow, then the day after tomorrow.

Secondly, it is important to understand that the EU (and the world) does not care about Greek national debt, it just needs to test new mechanisms. And after this task is accomplished, the reaction to future attempts to write off or restructure national debt might be a lot tougher. That’s why the solution must be found on the largest possible scale, no need to run small-scale experiments.

Thirdly, EU leadership will try to control the situation by applying pressure on the government “from below”. In other words – various social protests will be organized whenever it will appear that the new Greek government is not “behaving”. And it must be ready for such developments.

Fourthly, there is just not that much time left. Various market indicators are suggesting that US markets have reached critical points in terms of overheating and a considerable correction is imminent. And if it begins, mostly likely there will no longer be enough time for complex operations.

In conclusion, it can be noted that the new Greek government has some very interesting political tools that doubtfulness should be used to improve the economic situation in the country. But they should be used with utmost caution to get maximum benefits and avoid potential dangers.
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The article was translated into Greek: http://gr.rbth.com/international/2015/02/11/symboyli_pro_ellada_poyliste_to_tomari_sa_akriba_35303.html

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Police beating people protesting currency collapse in Kiev

This is the note by Tatzhit Mihailovich under the YouTube video:Remember how under the "dictator" Yanukovich, the police didn't disperse the protesters but only repelled extremists advancing on Congress and President's Administration? Yeah, that is n...

Ukraine February 26th SITREP: A Ukrainian Smørrebrød

Nothing major has happened over the past 24 hours, but a lot of small but interesting things have happened in the past couple of days.  What I propose to do first today is to list them with a URL to the original source:

A Ukrainian Smørrebrød:

According to a recent poll of the Lithuanian TV station TV3 82% of their viewers say that Russian media info is trustworthy.  Get the details here in English from FortRuss: http://fortruss.blogspot.com/2015/02/82-of-lithuanian-viewers-support-russia.html

There is now also a petition in the UK to oppose UK military involvement in the Ukraine.  See here: http://www.change.org/p/hm-government-david-cameron-mp-no-to-british-military-involvement-in-ukraine

A Swiss newspaper is saying that the US delivered four mini-nukes to the Ukraine.  I am 99.9999% sure that this is nonsense.  But the rumor itself is an interesting fact.  See here: http://www.schweizmagazin.ch/nachrichten/ausland/22283-Vier-amerikanische-Mini-Atombomben-der-Ukraine.html

Neocons still want to believe that they will beat Russia.  See here: http://www.worldaffairsjournal.org/blog/alexander-j-motyl/why-russia-will-lose-ukraine

Russia and Cyprus has signed a military agreement.  See here: http://www.presstv.ir/Detail/2015/02/25/399160/Russia-Cyprus-ink-military-accord

Russia is offering Antey-2500 missiles to Iran.  See here: http://rt.com/news/234855-russia-iran-missiles-deal/

Ukraine is entering hyperinflation.  See here: http://www.zerohedge.com/news/2015-02-25/ukraine-enters-hyperinflation-currency-trading-halted-soon-we-will-wwalk-around-suit

Prices are causing shortages in the Ukraine.  See here: http://korrespondent.net/ukraine/events/3483908-yz-za-rosta-tsen-ukrayntsy-opustoshauit-mahazyny

The OSCE is doing it's utmost not to notice that Novorussia is withdrawing its heavy weapons while the junta is not.  See here: http://rt.com/news/235399-ukraine-osce-weapons-withdrawal/

Three citizens of Donetsk were executed by the Novorussian authorities for committing terrorist attacks using a 82mm mortar against the civilian population.  Their motive?  Money.  See here: http://riafan.ru/217127-opolchentsyi-kaznili-troih-donchan-kotoryie-za-dengi-obstrelivali-gorod/

The US/NATO are continuing their saber-rattling along the Russian border.  See here: http://www.globalresearch.ca/us-nato-military-convoys-of-tanks-and-armored-vehicles-at-russias-doorstep-rolling-along-the-estonia-russia-border/5433373

Novorussians soldiers are finding US equipment including communication gear in Debaltsevo. See here: http://www.liveleak.com/view?i=86d_1424397139

Zakharchenko is fed up with junta's non-compliance with the Minsk accords and has issued an ultimatum: comply by tomorrow or else.  See here: https://www.youtube.com/watch?v=fqEu8XAL-zw


It is quite clear that the junta is either unable or unwilling to implement the Minsk-2 Agreements (M2A) and that the US is acting like that agreement was never signed in the first place.  In fact, since Poroshenko's power is entirely dependent on US support, I consider him as little more then the executioner of US orders with little or no power of his own.

There are more and more signs indicating that M2A was a major victory for Russia which succeeded in making the Europeans commit to something the US does not want and which Poroshenko cannot deliver on.  Clearly, the US is now using all its power to get the OSCE to shut up and look the other way, but time is definitely on the Novorussian side: they can wait until it is clear that it was the junta which did not comply with M2A at which point the Russian-Novorussian border will de jure be lost for the junta (de facto they lost it last summer).

Zakharchanko is literally radiating confidence and so are the other Novorussians.  The contrast with the chaos in Kiev could not be greater.

As for the US, it is acting like reality simply does not exist.  For Uncle Sam, it purely "more of the same", more rhetoric, more saber-rattling, more hot air even though nobody seems to be taking it very seriously.

What will be crucial in the near future is to see whether Merkel and Hollande will hold the course on M2A or whether Uncle Sam will force them to cave in yet again.  They now have *a lot* invested in M2A, but then again, so did the EU with Southstream.  My feeling is that right now anything could happen, it is a 50/50 situation.  Lavrov is doing a great job demanding that the German and French stick to the deal and so is Zakharchenko.

All in all, I am rather satisfied with the recent developments.

The Saker

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