IMF and the European Central Bank saved the banks, not Greece

23/12/2013

By Apostolis Fotiadis

In a recent talk in Athens Philippe Legrain, a former economic adviser to the European Commission, admitted that European policies helped cause the crisis and were never designed to help Greece. Legrain says that the ECB has been captive to Germany and that maintaining the politics of austerity merely 'postpones the inevitable' for Greece at huge cost.

A few days ago at a conference in the center of Athens, the economist Philippe Legrain, a member of the Bureau of European Policy Advisers to the European Commission (BEPA), was beginning his talk on the economic crisis. “What I am about to say I say as an individual and not as an adviser to the European Commission. I resigned a week ago.” Another lost opportunity to hear the current arguments in favour of austerity coming from Brussels. Yet at least for the first couple of minutes the speaker seems to be on message. Then suddenly he says, “During the crisis the IMF and the European Central Bank saved the banks, not Greece. That was the achievement of those responsible for establishing policy.” The second surprise was that the former adviser had not only resigned but had also apparently suffered an attack of ‘Tsipras’.

For the next 20 minutes there followed a devastating attack on the fiscal policies imposed in Europe over the past four years.

The truth is, according to Legrain, that the “complete turn towards austerity began before the sudden rise in interest rates. And it was that choice that caused the markets to panic. The European Central Bank could and should have kept the panic in check.”

Its decision to not intervene in order for its independence from national politics to not be called into question was spurious. “The insistence of the ECB that it preserve its independence was the product of its captivity to German politics.”

“The eurozone has relaxed austerity policies everywhere except Greece. Continuing them merely postpones the inevitable at huge cost. Greece must adjust its debt obligations, it must renegotiate (the polite term for default) on its debts and become a recipient of large foreign capital investment. It must withdraw the taxes on labour and real-estate and transfer them to mobile capital. The alternative scenario is prolonged stagnation, social decline and political regression.”

The epilogue: a few general questions and answers and that was it. For the public debate in Greece the fact that an adviser to Barroso came to Athens a few days after resigning and levelled the policies of the European Commission condemning German hegemony was a non-event.

But it must mean something that the austerity front was showing such serious cracks at the same time that Angela Merkel was cradling a bouquet of flowers as she was being sworn in for her third term. There is a problem with the conventional narrative over the crisis and Barroso’s adviser knows it well.

Behind Legrain’s disdain there is an admission that if Germany and the ECB helped magnify the crisis then they have not worked hard enough to solve the problems faced by the eurozone and Greece. Either they made huge mistakes or knowingly manipulated the situation to suit their interests. In this narrative there is no rescue of Greece, there is the priority of saving European banks from collapse during the first 2 years of the crisis and the protection of the rest of Europe from a Greek default - with Greece’s full collaboration.

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