I missed this story last week, and it’s an important one. If you want evidence that Disaster Capitalism – the termed coined by Naomi Klein in her brilliant book “The Shock Doctrine” is still the dominant tactic of free market militants, look no further than what is being proposed in Greece. Klein proposed that prominent free market capitalists use disaster, ‘either real or perceived’ to ram through extreme free market reforms that the public would otherwise reject, and it looks like the European Central Bank, the IMF and the European Commission is trying to do just that. From Business Insider:

Greece’s eurozone creditors are demanding that the government in Athens introduce a six-day working week as part of the stiff terms for the country’s second bailout.

The demand is contained in a leaked letter from the “troika” of the country’s lenders, the European commission, European Central Bank, and International Monetary Fund. In the letter, the officials policing Greece’s compliance with the austerity package imposed in return for the bailout insist on radical labour market reforms, from minimum wages to overtime limits to flexible working hours, that are likely to worsen the standoff between the government and organised labour in Greece…..

The letter, sent last week to the Greek finance and labour ministries, orders the government to extend the working week into the weekend.

“Measure: increase flexibility of work schedules: increase the number of maximum workdays to six days per week for all sectors.

“Increase flexibility of work schedules; set the minimum daily rest to 11 hours; delink the working hours of employees from the opening hours of the establishment; eliminate restrictions on minimum/maximum time between morning and afternoon shifts; allow the consecutive two-week leave to be taken anytime during the year in seasonal sectors.”

The reforms are of course targeted at those least able to resist them – the poor and struggling middle class, while the rich are being left alone. This is a typical misdirection tactic used by free market capitalists who insist on free markets for the poor while refusing to acknowledge the heavily subsidized and protected existence of the rich. Conversely, the rich are given more benefits during times of crisis, ostensibly because they will reinvest their money back into the economy (despite the evidence showing that they don’t).

The reforms being proposed by the EC, IMF and ECB are simply another attempt by bankers to permanently disenfranchise huge sectors of the population from the economy and make them more beholden to the owners of society – ie. themselves. The proposals are basically to create giant flexible labor markets that work exclusively for the interests of the rich, and not themselves. They want Greeks to worker longer and harder for less money, while they continue to force them to pay back loans at excessive interest rates that they will never be able to afford. The result? More debt and no way out. It’s incredibly transparent, and given Greece’s tradition of trade unionism and strong protection of worker rights, thankfully it’s not going to go down very well.

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Christine Lagarde: Managing Director of the International Monetary Fund (Photo credit: Wikipedia)

From the Independent:

The International Monetary Fund yesterday handed the UK a bigger growth forecast downgrade than any other advanced nation and warned the global economy remains in a “precarious” state.

The international lender of last resort said that the British economy will grow by just 0.2 per cent in 2012, down from the 0.8 per cent it was expecting in April. The 0.6 per cent downgrade is the largest experienced by any advanced economy in the IMF’s regular World Economic Outlook.

Even the outlook for the two recession-hit eurozone nations, Spain and Italy, has not deteriorated so badly over the past three months, according to the IMF. Spain’s outlook has been upgraded from a 1.8 per cent contraction to a 1.4 per cent fall. The forecast for Italy is unchanged at a 1.9 per cent decline.

The US economy is expected to grow by 2 per cent, down from 2.1 per cent seen in April. Germany is seen as contracting 0.3 per cent, rather than experiencing flat growth. The IMF sees China growing by 8 per cent in 2012, down from 8.2 per cent.

For the global economy as a whole, the IMF, led by Christine Lagarde, sees growth of 3.5 per cent. Despite the host of downgrades, this is more or less the same as in April because growth in the first quarter of the year turned out stronger than expected.

However, the IMF warned that the global economy could easily turn out significantly weaker if policymakers in Europe failed to tackle the eurozone sovereign debt crisis and US politicians do not prevent automatic spending cuts kicking in next year. “Downside risks continue to loom large … reflecting risks of delayed or insufficient policy action,” it said.

The substantial downgrade for the UK increases the pressure on George Osborne because the IMF argued last September that nations with low borrowing costs, including the UK, should slow their pace of fiscal consolidation if growth fell short.

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More austerity in Spain despite its unpopularity

From Bloomberg:

European leaders are testing the latest version of their debt crisis strategy in Spain, granting Prime Minister Mariano Rajoy more time to reduce the budget deficit in exchange for deeper spending cuts.

Rajoy yesterday announced 65 billion euros ($80 billion) of austerity measures in a renewed effort to meet European Union budget targets after he was granted a one-year extension on the deadline to meet EU limits.

“Europeans are learning from past mistakes,” said Christian Schultz, a senior economist at Berenberg Bank in London and a former European Central Bank official. “The stick is necessary but the carrot is also good.”

Europe’s concession to recession-wracked Spain has raised expectations in Ireland and Portugal that they can win more time to rein in their budget deficits after Germany’s hardball tactics in Greece spurred a rebellion against bailout politics there.

Spanish bonds rose for a third day today. The extra yield investors demand to hold Spanish 10-year debt instead of the benchmark German bunds dropped 4 basis points to 527 basis points at 11:15 a.m. in Madrid.

“People can see that they are serious,” said Javier Morillas, professor of international economics at San Pablo CEU University in Madrid. “I don’t think these are the last measures we’ll see, and they certainly aren’t the last cartridges Rajoy has left.”

Rajoy’s budget package came as Spain finalizes the conditions of a 100 billion-euro bank rescue bank that will allow International Monetary Fund officials to intervene in the process of restructuring the banking system and tightens scrutiny over spending plans.

European leaders also held out the prospect of buying Spanish debt to trim yields as long as Rajoy complies with their conditions, which include transferring powers from the Economy Ministry to the Bank of Spain and bolstering the central bank’s independence.

Rajoy is also seeking additional cuts from the 17 regional governments, which control health and education. Even as Spain’s own access to capital markets is narrowing, the central government is planning to help states fund themselves on markets.

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JP Morgan's CEO Jamie Dimon in the hot seat

From the HuffPost:

At least some of the billions of dollars that JPMorgan Chase lost gambling on credit derivatives once belonged to you.

Last week, Senator Jeff Merkley (D-Ore.) had the gall to spoil the Senate Banking Committee’s gentle grooming of JPMorgan CEO Jamie Dimon by pointing out that his bank would not still be in existence without taxpayer assistance.

Outraged by Merkley’s impunity, Dimon roared that his bank only took the government’s lousy bailout money and only borrowed at rock-bottom interest rates from the Federal Reserve because the government insisted that it do so, for the sake of appearances and the good of the country. And JPMorgan is the country’s greatest hero, so it had no choice but to accept all of this free money the government was handing out. It certainly did not need it.

What Dimon did not say, however, was that JPMorgan Chase continues to get loads of free government money — probably $14 billion per year, according to number-crunching by Bloomberg, based on an International Monetary Fund study.

Bloomberg’s editors write:

The money helps the bank pay big salaries and bonuses. More important, it distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy.Fourteen billion dollars? That’s a lot of cufflinks! The number is based on an IMF estimate of the benefit JPMorgan gets in the bond market from the assumption that the government will make JPMorgan’s creditors whole in the event of another financial catastrophe.

The IMF figures that big banks pay about 0.8 percentage points less in interest to borrow, compared with ordinary mortal banks that have the misfortune of not being too big to fail. That lower interest rate translates into about $76 billion per year for the 18 biggest U.S. banks, Bloomberg writes, of which JPMorgan’s share is $14 billion.

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President of Spain Mariano Rajoy warns that the danger is far from over. (Photo credit: Wikipedia)

Responding to increasingly urgent calls from across Europe and the United States, Spainon Saturday agreed to accept a bailout for its cash-starved banks as European finance ministers offered an aid package of up to $125 billion.

European leaders hope the promise of such a large package, made in an emergency conference call with Spain, will quell rising financial turmoil ahead of elections in Greece that they fear could further shake world markets.

The decision made Spain the fourth and largest European country to agree to accept emergency assistance as part of the continuing debt crisis. The aid offered by countries that use the euro was nearly three times the $46 billion in extra capital the International Monetary Fund said was the minimum that the wobbly Spanish banking sector needed to guard against a deepening of the country’s economic crisis.

On Sunday, Prime Minister Mariano Rajoy tried to deflect criticism for his government’s decision to seek assistance for Spain’s ailing bank. The winners, he said,  were “the credibility of the European project,  the future of the euro, the solidity of our financial system and the possibility that credit will flow again.”

But he warned  that Spain’s economic problems would worsen  this year despite the request. “This year is going to be a bad one,” Mr. Rajoy told reporters, according to The Associated Press.  More people, he said, could lose their jobs — one out of every four Spaniards is already unemployed.

Mr Rajoy also insisted that the rescue deal should not be seen as the fourth bailout in the euro crisis but as a loan  to recapitalize Spain’s weakest banks, “which isn’t that easy to obtain.”

The announcement of a deal came amid growing fears that instability in Spain could drag down an already sputtering world economy. The decision was the culmination of weeks of a contentious back-and-forth between Spain and its would-be creditors in which it was hard to tell how much of Spain’s resistance to financial help was tactical maneuvering for a better deal and how much a refusal to admit the depth of the banking sector’s troubles.

The escalating tension prompted President Obama to push Friday, in unusually explicit terms, for quick European action.

European officials have said they wanted their offer to go well beyond Spain’s immediate needs to shield the country from any destabilizing effect from next weekend’s Greek parliamentary election. Spain has fought to avoid the stigma of a bailout and on Saturday portrayed the Europeans’ offer as coming with few strings attached. Although the European statement on the aid package gave few details, it did not mention new austerity measures and said the conditions of the agreement were focused instead on banking reforms, as Spain had requested.

Spanish officials on Saturday denied that their country was in the same position as Greece, Portugal and Ireland, which have all received bailouts that demanded they slash spending. And on Sunday, Mr Rajoy  rejected suggestions that Spain had been pushed to request help ahead of new Greek elections on June 17 that could precipitate Greece’s withdrawal from European monetary union.

Read more at the NYTimes…

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Martin Wolf in the FT on what the Chancellor of the Exchequer should have said when it got into power, rather than box itself in with a rigid economic philosophy that clearly isn’t working:

“Our country is in a deep economic and fiscal hole. This is the result of mistakes made by, and under, our Labour predecessor. It is this government’s intention to remedy this by eliminating the structural fiscal deficit over this parliament. I present today our plans to do so.

“Unfortunately, we cannot be at all sure how big the structural deficit is. Nor do we know what shocks will befall the world economy. Nor do we know how the UK economy itself will perform.

“Should the economy and the fiscal position not evolve as we hope, we expect that automatic fiscal stabilisers and monetary policy would sustain the recovery. If that turns out not to be the case, we will be prepared to use all the instruments at our disposal, including, if necessary, fiscal policy, to sustain recovery. Whatever we do in response to adverse events, we will maintain our goal of eliminating the structural deficit by the time the economy has finally returned to health, though we cannot know when that will be.”

“I am sorry I cannot be more specific. But this is the only sort of policy that makes sense in these desperately uncertain times.”

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Stocks tumble in Europe as Greeces prepares for Euro Zone exit

European stock markets have fallen sharply as concerns mount over Greece’s future in the euro.

Shares fell after a report quoted former Greek Prime Minister Lucas Papademos saying that the Greek government may be making preparations for leaving the euro.

By lunchtime shares in London, Paris and Frankfurt were down about 2%.

Adding to the negative mood, Germany’s central bank said the developments in Greece were “highly alarming”.

“Greece is threatening not to implement the agreed reforms and consolidation measures,” the Bundesbank said in its latest monthly report.

It said that scenerio could create “substantial” challenges for the eurozone and Germany, but the situation would be “manageable via careful crisis management”.

In an interview with Dow Jones Newswires, former Greek Prime Minister Lucas Papademos said: “It cannot be excluded that preparations are being made to contain the potential consequences of a Greek euro exit.”

“The risk of Greece leaving the euro is real and it depends effectively on whether the Greek people will support the continued implementation of the economic programme,” he said.

Despite the prospect of Greece leaving the euro, the head of the IMF, Christine Lagarde, is keeping up the pressure on Greece to fix its finances.

In an interview with the BBC, Ms Lagarde said there had to be more tax collection and structural reform.

That is despite the deep unpopularity of austerity measures imposed on Greece by the IMF and European Union in return for bailout funds.

Greek politicians are divided over whether to continue supporting those austerity measures and face a 17 June election.

“The Greek population has made huge efforts. But they have more to do. There are more structural reforms to be had, there is more tax to be collected and that has a price,” Ms Lagarde said in an interview with the BBC’s Today programme.

Many analysts think that Greece may abandon the austerity measures and be forced out of the euro.

Ms Lagarde said the IMF did not like the that prospect, but that it was “prepared for all possible situations”.

Read more at theBBC….

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Greece close to exiting the Euro

Prolonged electoral uncertainty has put Greece into a state of deep freeze, meaning whoever finally emerges as the new leader will take over a country already falling behind on its promises to lenders.

The European Union and International Monetary Fund demanded extensive cuts and reforms as part of a 130 billion euro bailout package agreed in March.

But Greece has had no elected government since an inconclusive election on May 6, and paralysis will continue for at least another month, even as funds dry up in the treasury.

Senior judge Panagiotis Pikrammenos was sworn in as interim prime minister on Wednesday, but he will not be empowered to take any political decisions – only to steer the country to a new vote on June 17.

“The only thing we are doing is waiting,” said a government official who declined to be named.

Another Greek official close to bailout negotiations said ministers in the outgoing cabinet have not been authorised to negotiate with Greece’s lenders since the May 6 election. A senior party official said the caretaker government would not publish any decrees and all tender procedures were suspended.

Leftists now favoured to win the next election have alarmed Europe by threatening to tear up the bailout altogether. But even if the next Greek government wants to keep to the agreement, it will have catching up to do from day one.

A privatisation programme already many times cut back has been suspended, a multi-billion euro spending cuts plan is far from being ready, tax collection continues to be weak and a bank recapitalisation plan is in limbo.

One consequence already became clearer on Wednesday: sources at the European Central Bank said it had withheld liquidity for some Greek banks because the bank recapitalisation plan had not yet been successfully implemented.

Even before the May 6 election, many reforms were put on the backburner to avoid antagonising voters, officials involved in bailout talks say. These include a plan to slash spending by over 11.5 billion euros in 2013-2014, which Greece must agree by late June to meet a key bailout target.

Read more at Reuters….

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Negotiations on forming a new Greek government have ended after an hour but will resume on Tuesday.

Three previous attempts to form a government have failed. If the parties cannot agree on a coalition, new elections must take place next month.

The left-wing Syriza bloc – the second largest in parliament – did not attend the talks, saying it would not join any coalition making further cuts.

Syriza rejects the terms of the EU/IMF bailout, which demand more austerity.

“Things are very difficult. I’m not optimistic,” said Evangelos Venizelos, leader of the Socialist Pasok party, after the talks, according to the Reuters news agency.

A majority of Greek voters backed parties opposed to the austerity needed to meet the terms of the 130bn euro ($170bn; £105bn) bailout agreed with the EU and International Monetary Fund (IMF).

European markets and the euro fell sharply on Monday. The euro stood at $1.2845, down 0.54% from Friday.

The leaders of the centre-right New Democracy, Pasok and moderate Democratic Left parties arrived at the presidential palace shortly after 19:30 (16:30 GMT) on Monday for talks.

They left an hour later. President Karolos Papoulias called another round of talks for Tuesday, to include all parties except the far right.

Mr Papoulias has proposed a technocratic government.

Syriza’s leader Alexis Tsipras rejected the invitation from the Greek president to join the coalition talks on Monday, saying he would not be a party to what he called a crime.

Read more at the BBC….

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Dominique Strauss-Kahn under investigation again

Former IMF chief Dominique Strauss-Kahn has been put under formal investigation by a French court over his alleged role in a prostitution ring.

Richard Malka, a lawyer for Strauss-Kahn, said he has been handed preliminary charges after investigating judges questioned him for several hours on Monday.

Under French law, preliminary charges mean authorities have reason to believe a crime was committed but allow more time for investigation.

The move is an esclatation of the case against the Socialist ex-finance minister but falls short of a formal charge.

Strauss-Kahn has denied the allegations against him, arguing that he was unaware women he met at parties organised by business associates in Lille, Paris and Washington were prostitutes.

Richard Malka said Strauss-Kahn denies wrongdoing and it is wrong to prosecute him for “simple libertine activity.”

Prosecutors said that the 62-year-old one-time presidential favourite had been released on $135,000 (100,000 euros) bail following Monday’s charges for an offence that could carry as many as 20 years in prison if convicted.

“Dominique Strauss-Kahn was placed under judicial control and was forbidden from contacting defendants, civil plaintiffs, witnesses and the press regarding the procedures,” prosecutors said in a statement.

Strauss-Kahn’s name came up as police were investigating a pimping operation that saw sex workers from brothels over the Belgian border being brought to France for orgies in high-class hotels in Lille and Paris.

Hiring sex workers is not illegal in France, but prosecutors are seeking proof that Strauss-Kahn was aware the parties were arranged by an organised pimping ring and paid for by other guests misusing company funds.

Several Lille-based businessmen and police officers have been accused of taking part in the ring. Read more at Aljazeera.com

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