By JIM BACH at Money Morning
Markets are breathing a sigh of relief now that Greece has negotiated a new bailout plan with its Eurozone creditors.
Under the austerity conditionality of two bailout plans authored by the European Central Bank, the European Commission, and the International Monetary Fund – the troika – totaling 240 billion euros ($268.8 billion) over the last five years, we’ve seen the results…
Greece’s unemployment rate is close to 26%.
Greece’s labor force has shrunk by 975,300 workers, or 22%.
Now it’s safe to assume this labor crisis will only deepen…
What Will Happen to Greece Now?
“The dysfunctional and bankrupt Hellenic State will continue to be funded for a couple of more years – after which they’ll have to go through this moronic exercise all over again,”Money Morning Special Contributor Michael E. Lewitt said. “Nowhere in the proposed deal between Greece and its creditors is there any write-down in Greece’s hundreds of millions of euros of debts or any recognition that the Greek people will continue to suffer inside the currency union.”
Despite the Greek electorate voting the Syriza party to power in the most recent election – on a platform of abandoning austerity and rejecting bailout loans – and a decisive “no” vote on more bailout loans on a public referendum last week, little has seemed to change.
Greek Finance Minister Yanis Varoufakis, who has been advocating for a sharp write-down inGreek debt, stepped down after the referendum. And Prime Minister Alexis Tsipras capitulated, agreeing to even more harmful austerity measures to access more bailout loans.
“Having allowed its populace to self-immolate and vote against accepting the demands of its creditors, the Syriza government caved to precisely those demands, and now the world will wait to see if the rest of the European governments will be dumb enough to fall for this charade,” Lewitt said.
The most recent bailout efforts are yet another exercise in “extend and pretend.” It’s very clear that Greece has no ability to pay back its debts. And at this point, extending even more loans to an already insolvent country promises only to bring this debate back to the forefront once it’s clear Greece can’t pay back this bailout.
So, why does the madness continue in Europe?
What Happens to Greece and the Eurozone Now
The success of the European monetary project – which is underneath the surface a much more ambitious political project – hinges on Greece’s continued participation and ability to pay back its loans.
Greece doesn’t want to exit the euro for fears that a return to the drachma and a pre-announced devaluation will lead to liquidation of Greek wealth. They want to default, as Greece can’t recover if it tries to live bailout-to-bailout.
The troika doesn’t want to see a Greek default because it calls into question the legitimacy of the whole monetary project. If Greece goes, are debt-ridden Portugal, Italy, and Spain next to follow?
A Greek default would be a minor economic event as it comprises only about 2% of the Eurozone. But if Greece falls and others follow, the damage could be devastating.
The main aim of the troika right now is to make the pain of default so excruciating that other members of the Eurozone periphery wouldn’t dare pursue the same suicidal path.
“The European Central Bank wants them to privatize their gas resources,” Michael Hudson, distinguished research professor of economics at the University of Missouri-Kansas City, told Money Morning.
The Eurozone wants to be the top bidder on Greece’s public assets, while also forcing Greek labor out of the country in an effort to make Greece an “object lesson” for the rest of Europe.
“Twenty percent of Greek labor has emigrated,” Hudson said. “They insist that 40% have to emigrate, wages have to be lowered another 30%, and basically the country has to be emptied out. Essentially they’ve said to Greece, ‘We want your raw materials, your gas – get out of the country.'”
So, what will happen to Greece now?
Greece will continue down this path of labor-crushing “reform” until the country sheds the bulk of its workforce and prepares its gas resources for European plunder.
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