Greece Eurozone Deal a Setback or Tactical Win for Syriza?

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Dr. Heiner Flassbeck, Ph.D. in Economics from the Free University, Berlin, Germany in July 1987. 2005 he was appointed honorary professor at the University of Hamburg. Co-authored ACT NOW! The Global Manifesto for Economic Policy published 2013 in Germany. COAUTHOR, AGAINST THE TROIKA: CRISIS AND AUSTERITY IN THE EURO ZONE

PAUL JAY, SENIOR EDITOR, The Real News Network: Greece and the Eurozone officials appear to be reaching some kind of agreement with some kind of extension on Greeks’ debt and bailout agreement. We don’t know the details — what do we know about this agreement?

HEINER FLASSBECK: It seems there is a compromise between the Eurogroup and the Greek government. They have agreed on extending the bailout under certain unknown conditions. The Greek government wants new conditions because Greece cannot continue with the old neoliberal conditions that were imposed on them by the troika.

JAY: Give some examples of some of the more outstanding of these conditions.

FLASSBECK: One was privatization of $50 billion for the Port of Piraeus and another things — Absolutely unreasonable since once investors know Greeks have to sell the thing, the price goes down next to nothing.

#2 Negotiate a New primary surplus in the government budget – Relaxed

#3 Interest payments of 4.5% = Extremely high and need to be Relaxed.

Fact: The Greek economy is in very bad shape after a Great Depression.
Fact: Unemployment is extremely high + Poverty is spreading.
Fact: Greece needs economic stimulation to get moving again.
Fact: Greece needs government investment and government consumption.
Fact: Stimulation is only way out to create a recovery.

SYRIZA government is absolutely right and it’s reasonable what they’re asking EU for.

JAY: USA MSM can’t say SYRIZA without calling them radical left. In Greek politics farther radical left says SYRIZA already gave into EU conditionality issues.

FLASSBECK: Absolutely clear that the situation for the SYRIZA government is extremely difficult. They’re running out of money and need a bailout. But the more urgent thing is people are taking money from their bank accounts and the banks are in very bad shape.

FLASSBECK: Banks need emergency liquidity assistance from the European Central Bank. And this is given in very small steps, because there is no bailout. The ECB has hinted that without a bailout the emergency liquidity system could run out. Then, as in Cyprus two years ago–the situation would deteriorate dramatically as the banks could go bankrupt.

JAY: If there’s a straight extension with no change on conditionality for 4 to 6 months is that a setback for SYRIZA?

FLASSBECK: Yes a big setback for SYRIZA. They promised not to accept the old Austerity Conditionality. So far they are somewhere in the middle with SYRIZA able maintain face with the people and also the German government and other northern governments, can say, they still imposed conditions on Greece. In the end there will be a compromise with rumors that Paris and Rome are sympathetic with the SYRIZA approach. So the Germans will realized they will have to give in and say let’s give them a little bit of money for a couple of months and renegotiate again. Germans want to imposing the old conditionality.

JAY: SYRIZA will call it a victory for just discussing conditionality.

FLASSBECK: Yeah, that would be a victory, definitely.

JAY: Something like a billion euros are leaving the Greek banks in a real currency run. SYRIZA says NO currency controls. But Cyprus eventually had to set currency controls.

FLASSBECK: It is unclear but obviously, they do not want to spread more panic and give the impression things are going rather normal. Fact is some money is flowing out, but at the moment seems to be under control and not to be dramatic. But it is dangerous and right on the sword’s edge and panic could cause a serious run on the banks. If capital controls are used clearly they would be admitting things are out of hand.

JAY: Germany seems to think that Greece leaving the Eurozone wouldn’t be such a disaster. Is that a bargaining position or are they in fact actually more concerned about it appears?

FLASSBECK: They’re concerned about their own members of Parliament, because they vote next week about the bailout extension. The conservatives in Germany hate Greece and they want the left-wing government to fail. But it could really spell chaos in Greece and lead to a disaster and a totally uncontrollable situation. But exit from EU a very difficult and complex process, that can lead to an avalanche of panic reactions with the people and a failed state or on ungoverned state = A disaster in the rest of Europe.

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