“And I shall wear the creditors’ loathing with pride.”–Minister of Finance Yanis Varoufakis
By Doug Porter
US newspapers today are telling readers about a “shocking rebuff” or a “stunning rejection” by Greek voters of a deal offered by international lenders to refinance that country’s debt.
The overwhelming “No” vote may be stunning for bankers and neo-liberal economists as it flies on the face of the presumption holding there was only one way out of the current crisis. The Greek people saw their vote as rejection of blackmail; they’ve had enough austerity, thank you.
Today, I’ll offer readers some viewpoints not commonly seen in coverage of the Greek financial crisis. The No vote is not the end of the world. Much of what we’ve been told/sold paints an incomplete picture. And anybody (Carl DeMaio, for instance) who’d like you to believe that Greek pensioners are at the root of the problem is selling snake oil–they are a symptom, not a cause.
Background and History
If you’re interested in background and history on the Greek debt situation, SD Free Press contributors Frank Thomas and John Lawrence have lots of insight. Be sure to read the comments; there’s some damn fine discussion there.
Frank Thomas on the history:
Since WWII through 1998, Greece had hardly a balanced year without relying on heavy subsidies from abroad. Greece entered the euro zone in 2001 – using falsified debt and deficit numbers ignored by the banking establishment. During 2001-2007, the door opened for long term funds at low interest rates and under-pricing of default risk (supported by Germany’s credit worthiness). Thus, a sharp reduction in debt service costs gave Greece some fiscal space to reduce its debt burden. Instead, Greece went on a spending and debt splurge that placed its debt burden on an unsustainable path – where the primary budget deficit soared to over 10% of GDP in 2009 and the debt/GDP ratio jumped from 100% in 2001 to 130% in 2009.
It all started when Goldman Sachs assisted Greece in lying their way into the Eurozone in the first place. They really didn’t qualify for admission but Goldman hid that small detail under a heap of trompe l’oeil, sleight of hand and financial shananigans that got past the critical eyes of the European ministers. They manufactured a highly questionable derivative scheme involving a currency swap that used artificially high exchange rates to conceal Greek debt.
Goldman then turned around and hedged its bets by shorting Greek debt just as they had done with the mortgage crisis in the US. Predictably, these derivative bets went very wrong for the less sophisticated of the two players, namely, Greece. A 2.8 billion loan to Greece in 2001 became a 5.1 billion debt by 2005. In the US mortgage fiasco they packaged subprime loans in portfolios, after having loaned money to people with questionable ability to pay back the loans, and then bet that they would default. Goldman made tons of money that way.
This debt has been refinanced twice, under terms protecting the banks and punishing the people who’d benefited the least from the Greek government’s poor decision making.
As LaFeminista at Daily Kos points out:
With 33% general unemployment, 55% youth unemployment with around 50% of the population living below the poverty line, eventually menaces of impending catastrophe become meaningless. Promising more of the same financial constraints, that promise more of the same [and worse], become absurd. 61% of Greeks said no thank you to the technocrats who were not even discussing a solution, just more of the same downward spiral, since as the IMF pointed out, without debt restructuring, there would be no solution.
Remember the results of Austerity in Greece were that the poorest households lost nearly 86% of their income, while the richest lost 17-20%.
A Failed Attempt at Regime Change
The latest offer by the European banks and the IMF was made with the idea in mind of destabilizing the current Greek government.
From the July 2nd Global Post:
European Parliament president Martin Schulz said his faith in the Greek government had reached “rock bottom,” and that he hopes it resigns after Sunday’s referendum…
Here’s Paul Krugman at the New York Times:
But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.
The deal offered to Greece was so bad that even the International Monetary Fund refused to endorse it, as Alex Andreou explains at Byline.com:
The IMF report, published yesterday, vindicates Syriza’s position almost entirely. Greece’s debt is not viable, it says. The approach of “austerity first, debt relief maybe” was a disaster. Another programme of cuts without debt restructuring would be so counter-productive that the IMF refuses to be part of it. Will the world listen now? Or is the idea that somewhere in Greece there is a mattress stuffed with a trillion Euros which we are simply refusing to hand over out of ideology?
Greece feels betrayed. The people “in the know” assured us that if we did as they instructed, the situation will improve. It didn’t. It got worse. And then worse again. We agreed to buy back our own debt at a premium and, by doing so, gave time to large financial interests to disentangle themselves from Greece, to put buffers against contagion. Now they don’t care. Greece was played. We were convinced to get in a lifeboat full of holes and now Europe wants to set us adrift.
The people of Europe need to realise that they were all played, too. Taxpayers’ money was pumped, not into Greece, but into failing banks, like everywhere else. Profit has been privatised and risk nationalised. They need to stop blaming the canary for coming up from the mine half dead.
The Greek Crisis is About Power
As Wikileaks revealed last week via National Security Agency wiretap transcripts, German Chancellor Angela Merkel knew as far back as 2011 that Greek debt was unsustainable.
From Maththew Iglesias at Vox:
Greece’s debts really are unsustainable. This is just basically not a debatable point. The reason it’s not genuinely shocking to hear that Merkel privately admitted this is that nobody really disputes it. Greece’s creditors know that they aren’t going to be paid back. But they want the debt to stay on the books anyway.
Well because as long as the debt is on the books, Greece needs to keep asking for permission to roll the debt over and failure to pay debts can be used as a political trigger for forcing Greece out of the Eurozone. The debt, in other words, isn’t about money. It’s about political control. If the debt is formally forgiven then not only do Greece’s creditors need to write down some money, but they need to let Greece go on its merry way. If the debt is merely subjected to repeated rounds of extend and pretend then Greece’s creditors get to keep making various demands about structural reform.
The Greek ‘No’ vote was an act of bravery.
Paul Krugman, again:
The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.
Here’s Zachary Karabell at Politico:
One thing is now certain: you cannot ask 11 million people to endorse the prospect of economic pain without foreseeable end. It doesn’t matter that the Greek political and economic system have been hopelessly corrupt for decades and that the Greek people are bearing the brunt of that. In democratic societies, people will rebel after five years of dramatic decline and no formula for the future that offers anything but more of the same.
There is plenty of fault and blame to be assigned, ranging from the rigidity of Greece’s creditors to the structural corruption of Greek politics and finances. Millions of Greek people have suffered as fingers pointed; they have now spoken and demanded that their needs matter.
Until the members of the Eurozone perceive that the problems of one member are a problem for all members, the euro experiment will remain tenuous at best.
Thomas Piketty on Greece
Economist Thomas Piketty laid out some truth about the current situation in an interview for the German newspaper Die Ziet. He believes it’s time or European countries to call an international conference to work out a just solution, one not dependent on neo-liberal economic policy. (Unfortunately an earlier translation has run afoul of German copyright law. I’ll post a better link when this gets sorted out.)
“Germany’s past … should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe. …
“What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations…”
…Those who want to chase Greece out of the euro zone today will end up on the trash heap of history.
How Does This End?
The end to this crisis over Greek debt isn’t going to be quick or easy. But the vote of the Greek people means another way other than the one suggested by Europe’s banksters must be found.
As Alex Andreou at Byline.com explained:
Does the situation in Greece really imperil the $17 trillion U.S. economy? Does it impact how 3 billion people in India and China will shape the next five or ten years, as hundreds of millions continue to lurch into the middle class? Does it impact how hundreds of millions of Africans stretching from Nigeria to Kenya manage their own economic moves into the future? No, no and no.
The Greek vote is important for the economic future of Greece. And it may damage the economies of Greece’s European neighbors. But Greece is an economic minnow that becomes larger only due to symbolism and collective bad decisions in the Eurozone.
The posturing towards future negotiations has already begun with Minister of Finance Yanis Varoufakis’ resignation this morning. I doubt you’ll read much about his resignation statement, which offers insight into what’s really going on behind the scenes.
The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage.
Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.
Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.
I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.
And I shall wear the creditors’ loathing with pride.
We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government.
The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.
Having failed to persuade the Greek people with an all-out propaganda campaign and threats, some on the neo-liberal fringe are saying the vote is proof democracy is failing as a political system. Others are calling for what amounts to economic warfare.
There is no way I could have possibly explained all the nuances of the situation in Greece in a format short enough to keep most people’s attention, so I haven’t. I’ve just tried to present some voices I thought needed to be heard.
On This Day: 1894 – Rail union leader Eugene V. Debs was arrested during the Pullman strike, described by the New York Times as “a struggle between the greatest and most important labor organization and the entire railroad capital” that involved some 250,000 workers in 27 states at its peak. 1933 – The first All-Star baseball game was held in Chicago. The American League beat the National League 4-2. 1965 – The Jefferson Airplane was formed in San Francisco
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bob dorn says
This was the best coverage I’ve read on the story, easily. The only reason established capital should be stunned by the Greek vote would be that its servile press predicted a win for the banks. Our own press reported three of four polls forecasted a narrow loss for the Greeks and a win for the EU. Now, the banks and their northern Euro governments will have to explain why the seat of democracy must be expelled from the Euro zone.
Surely, now, austerity will be seen for what it is, an ongoing economic campaign aimed at installing rule by the very few to the despair and suffering of the many.
John Lawrence says
Excellent coverage, Doug. The situation is so convoluted and abstruse, the word simplicity comes to mind. Is there a diplomat out there who can come up with a simplified solution that is fair to the Greek people? It seems that the neocons, neoliberals or whatever you want to call them have only one principle: debts must be repaid at all costs. They would rather see Europe fall apart than to give up on that principle.
Bonnie Bekken says
I am a sucker for Paul Krugman. Also am sometimes stuck on that local lovely blowhard, Doug Porter. So when the latter quotes the former, I pay attention. Best sorting out of the crisis I have seen, because, no answers, just thoughtful insight. My ignorance was with the “no” voters, because I recognize the need for pride, though patriotic pride is sickening to me. I also see the pain of the less privileged. Yep. Deal with it Angela. And I think you will deal well, because you are ECM.