As mayhem breaks out on stock markets; as Eurozone banks freeze up; and as the global financial system approaches a frightening 'danger zone,' the champions of the globalised 'free market' and of the Euro are in search of a scapegoat.
Instead of accepting that it is the broken banking system; the de-regulated financial Eurozone, and the deflationary monetarist policies of the Maastricht Treaty that are the roots of the crisis, the Troika (the IMF/EU/ECB) want to identify a convenient whipping boy.
Instead of going after the real culprits -- un-regulated bankers that lent recklessly, confident they would always be bailed out by taxpayers -- the approach of the Troika is to scapegoat Greece. The implication is that the whole fabric of the Euro, and with it the global economy, is torn apart because one poor country, Greece, will not enforce ever-deeper austerity on her people.
Let's get this straight. The Greek economy -- and with it the Euro -- is disintegrating because Greek politicians are implementing austerity, not because they are failing to.
As one of the poorest of the Eurozone economies, Greece was always the most vulnerable to the global financial crisis. The 'Troika' can build a credible case that Greece's politicians should not have borrowed from the private bankers of Europe, and therefore Greeks share responsibility for the debt.
But Greece was only able to borrow because, with the help of Goldman Sachs, she was welcomed by Europe's bankers and leaders into the pre-existing de-regulated, financial framework that is the Eurozone. A monetary union designed above all to promote, protect and subsidise the interests of money-lenders and speculators in the private bank-debt and sovereign debt markets.
Greece's entry into the Eurozone was of course a mistake. But the idea that Greece has misbehaved to an extent that deems her responsible for destroying the European and global financial fabric is, frankly, absurd.
The fact is Greece and Greece's debt is a symptom of the crisis, not the cause.
That is why the spectacle of the IMF's representative Bob Traa hectoring Greeks this week was both hypocritical and spurious.
All unbiased persons of common sense recognise that more austerity -- more unemployment, poverty, suicides, family breakdown, civil unrest -- will crush Greece. It does not require a PhD from Harvard to work that out. Last year Greece's GDP declined by 4.4%, according to the IMF. So far this year GDP has plunged by a further 7.3%, according to official statistics.
That is why the IMF's call for "a reinvigoration of structural reforms" is so profoundly irrational and self-serving.
Who believes that declining economic activity in Greece can save both her economy, the bankrupt European banking system and the Euro?
No sane person can believe that sacking 100,000 civil servants in a single year, increasing taxes on fuel, lowering the tax threshold so that the poorest Greeks pay for this crisis, cutting back on wages and old peoples' pensions -- will a) repay debts b) re-capitalise banks and c) lead to economic recovery.
Instead, these policies will trigger wider social unrest and the inevitable default -- sooner rather than later. And a Greek default, accompanied by social upheaval will be contagious, making things much, much worse for Europe as a whole.
So stop whipping Greece.
As we at PRIME have repeatedly pointed out, austerity policies pose a grave threat to a global financial system over-burdened by the debts generated by an out-of-control banking system.
The Troika seem unable to acknowledge that austerity is the wrong remedy for another crisis; the crisis of a bankrupt banking system broken on the back of de-regulated finance.
To address that crisis, the Troika must manage the write-down and write-off of unpayable private and sovereign debts in an orderly manner. This they refuse to do.
Instead their approach is that the private banking system must be protected from losses (and the discipline of the market) -- at all costs.
By this approach they are failing the people of Europe, as well as Greece: throwing good money after bad.
It is the failure of the Troika to extend their focus beyond the narrow interests of the private, wealthy banking elite of Europe -- and towards the interests of all Europeans -- that is causing economic failure.
Above all it is the failure of the Troika to promote policies in Europe that would create and increase employment -- in Greece and throughout the Eurozone.
For employment is the only way to raise the income (and tax revenues) needed to repay debts; and to restore the economy and the public finances (of Greece and other countries) to health.
Because the IMF, EU politicians and ECB bankers cannot accept or implement these self-evident remedies, the people of Greece are well advised to go it alone; to default and escape the clutches of politicians and officials determined to strangle all possibility of economic recovery.
Others have gone before -- and recovered: Russia in 1998; Argentina in 2001 and Iceland in 2008 -- after the biggest banking collapse in economic history.
Greece has only her austerity chains to lose.
Follow Ann Pettifor on Twitter: www.twitter.com/AnnPettifor
Robert Kuttner: Can Europe Be Spared Cascading Collapse?
As well, though the deal shaved 1% from Greece's 4% deficit, thereby allowing it under the 3% Euro threshold, we should all remember that 1 1/2 years after being admitted, the threshold was totally lifted when Germany and France blew through it and racked up deficits of 7%. So Greece would have gotten into the eurozone a year and a half later regardless.
I don't disagree that going into the eurozone was a big mistake for Greece. Their standard of living was higher in the 1990s than it is now. And for all the reasons Pettifor mentions (the inherent instability of a currency designed for the benefit of bankers [i.e. the ECB is even forbidden from buying sovereign debt in secondary markets but it CAN mess around with private institutions, buying theirs]), the game is rigged against countries that don't have the export surplus and prductive capacity of the eurozone leaders. Every country can't be a net exporter, after all, which is why you need sensible monetary policy.
Good to read sane analyses like the one in this article by Ann Pettifor. I wish the Huffington Post allowed us to post images; there are several scathing cartoons and collages circulating on the internet.
1. Total amount loaned so far to Greece: 55 billion
2. Total amount Greece has paid in interest to German taxpayers so far: 1 billion
3. Total amount German taxpayers have given to a Greek loan so far: 14 billion
4. Total amount of Greek debt held by German banks at the outset of the crisis: 55 billion
5. Total amount now held as of May 2011: 14 billion
6. Total amount German taxpayers lose if Greece defaults by 50%: 7 billion
Quick math: German taxpayer losses of 7 billion - 1 billion in interest earned = 6 billion in losses. Meanwhile, German banks have been recapitalized on Greek debt by 41 billion, courtesy of the IMF, EU taxpayers (mainly from eurozone countries that do NOT hold significant amounts of EU debt) and especially the ECB.
This is not about bailing out Greece. It's about recapitalizing the banks. Greece is a good scapegoat and distraction so that Austrian, Finnish, Slovakian taxpayers don't become incensed that they are recapitalizing German and French banks. But many people are fooled by what's going on--so I don't blame you.
Goldman-Sachs, US government officials (including Fed Chairmen Greenspan-Bernake), and a host of German-French banks negotiated deals to give Greece money, each of them making hefty fees, commissions, charging high interest rates, which compelled Greece to surrender future revenues from their national lottery and airport fees, among other sources of revenue. They deliberately made these arrangements, to circumvent EU debt-to-income (GDP) laws with the blessings of the French, German, British and US governments.
The truly scandalous story with respect to Goldman Sachs and Greece — that the bank may have been speculating heavily in the Greek debt markets at the same time it was trying to help the country hide its debt. There are concerns about speculative activity in the Greek debt markets and said that the SEC was investigating, particularly with regard to Goldman’s role in betting against securities that it had helped create. This is akin to what the mortgage-backed securities, Credit-Default-Swaps did to investors here in the US.
Nope, it is not their fault at all! Better, by far, to just insist that the Germans raise German taxes and retirement ages a bit more, and send the money saved so the Greeks can continue to live the good life.
They would be the new Greens - everyone would vote for them.
Cheers -- thanks for the insightful article!
We're in a downward spiral and the only way to stop it is to reverse the policies of the Bush and Clinton admins that allowed so called "free trade" to strip Americans of their jobs and their prosperity.
America is going the way of Greece, and nothing short of a major shift in wealth and 20,000,000 million new jobs is going to fix!
It is well-documented, by Matt Taibbi and others, how for 10 years these shonks gathered the fool Greek Treasury people into their snare: many more seasoned players have been similarly caught. So few bizoid journos have a clue of the crimes committed against Greece.
Well said. I personally am waiting for that first european country to declare it will raise import taxes to put it's own people back to work and opt out of this global freetrade tripe we've been fed.
Understand it is this idea of global freetrade that central bankers want to save. It is the idea that governments can regulate employment in a country by increasing or decreasing import duties thereby increasing or decreasing demand, that they want to squash. They want monetary policy alone to determine the ebbs and flows of social order in a country.
And thus they take "the" right answer, increasing or decreasing import duties, off the table and inflict pain and suffering on generations of people in the name of freetrade.
To carry it a bit further: we in the United States need to stop falsely acclaiming "risk taking" (ie, gambling) as the prime driver of our economy.
The German working class has been getting screwed so that the German government and banks can create their so-called financial miracle, which could become a complete meltdown soon.
So now Greeks and other peripheral EU countries are being slandered to the German public and ethnicity becomes somehow an argument with racist imagery at the foreront: southerners hanging out at the beach while northerners work hard in the snow.
People, it's got NOTHING to do with ethnicity. It's all about the capital sticking its boot in the proletariat's mouth. Wherever you are, whicever country you live in, if you're a working class person paying the bills of banks and their corrupt government friends, you are a Greek right now.
Germany and France took in at least $15 billion for their banks from peripheral members, another $6 billion in interest payments from Greece. Assuming a 40% Greek default, Germany and France will be out $18 billion (and they'll probably sell 5% of the loss to vulture funds). Altogether, Germany and France come out ahead with $18 billion lost, $20 billion gained, their banks recapitalized.
The Greek national railways pay more in salaries than their total income
Really the banks fault?
Why is paying your own way now suddenly called "austerity"? Bizarre. So when we expect a country to keep its deficit to less than 3% of GDP suddenly we have to label this austerity - what bunkum
Below is a list of all the countries in the Eurozone that violated deficit limit. They include -apart from Greece- Germany, France and Italy.
You are missing the point on the Eurozone crisis: it wasn't the Greek public sector that caused the crisis, which is indeed bloated; it was that the eurozone was designed so that the least financially strong nations would keep borrowing and buying amock from the richer nations/Germany, which created huge surpluses in the meantime. No need to put "austerity" in quotes. Unemployment is extremely high -40$ among young people- and pensioners and the poor are footing the bill.
Here's the list from: http://www.businessinsider.com/eurozone-deficits-2010-2010-2011-4
"The rule breakers in 2010:
Ireland: 32.4% deficit as a percent of GDP
Greece: 10.5% deficit as percent of GDP
Spain: 9.2% deficit as percent of GDP
Portugal: 9.1% deficit as percent of GDP
Slovakia: 7.9% deficit as percent of GDP
France: 7.0% deficit as percent of GDP
Slovenia: 5.6% deficit as percent of GDP
Netherlands: 5.4% deficit as percent of GDP
Cyprus: 5.3% deficit as percent of GDP
Austria: 4.6% deficit as percent of GDP
Italy: 4.6% deficit as percent of GDP
Belgium: 4.1% deficit as percent of GDP
Malta: 3.6% deficit as percent of GDP
Germany 3.3% deficit as percent of GDP"
From "Vanity Fair", by Michael Lewis,
http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010?currentPage=2
http://greece.greekreporter.com/2011/09/21/statistician-says-greece-played-numbers-game-inflated-deficit/
The head of the department is a personal friend of Greek Prime Minister George Papandreou.
Are Greek people to blame for all this?