Greece - Free at Last?
Greece, we are told, has been released from its tutelage under the Troika [the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF)].
The government is free to borrow on international markets once again. Greece has been saved from its own profligacy with a huge injection of €290 billion in total since 2010.This unprecedented act of generosity has put the country back on its feet again.
This account is a fairy tale from beginning to end.
Greece as a country is still 25% poorer in 2018 than it was eleven years ago in 2007, before the onset of the Great Recession. The crisis has inflicted worse damage on the country than the Great Depression did to Germany or the USA in 1929-33. One in five Greeks remain unemployed, with two in five of the nation’s youth out of work. 300,000 people, often the brightest and best, have been forced to emigrate. Wages, pensions and benefits have been savagely driven down. Homelessness, addiction and suicide have become endemic. Health and social services are in shreds. It is no exaggeration to say that the Greek people have been starved by the Troika and the big capitalist countries it represents as part of their programme of ‘treatment’ for Greece.
How did this happen?
The Great Recession began in 2007 in the form of a financial crisis, called the ‘credit crunch’ in the advanced capitalist countries. The crisis peaked in 2008 as bank lending became paralysed and one bank after another failed, spreading alarm and despondency through the wider world economy.
As the major capitalist powers rushed to bail out the banks at whatever the cost output dipped and, with it, tax revenues. The inevitable outcome of increased state outlays and falling income was that governments of all political complexions ran deficits. They were spending more than they were getting in. Public debt soared. What had been perceived as a financial crisis now manifested itself as a fiscal crisis of the state.
It was the onset of the Great Recession that made the debts of the peripheral EU countries such as Greece, built up during the boom years, become insupportable. The big capitalist countries’ banks had been pouring money at the periphery. Suddenly they realised they might never get it back. The crisis sharpened the conflict between core and periphery over the issue of debt. So Greece was just collateral damage. The Greek crisis also posed a threat to the Eurozone and to the very existence of the euro.
Austerity was imposed upon Greece by the Troika, who have effectively ruled the country, supposedly to pay the country’s debt. In effect the creditor nations used the Troika to declare the country bankrupt and take over the handling of its economic affairs.
American economic historian Barry Eichengreen correctly makes the point that the moves to restructure the gargantuan Greek debt by the Troika were not done to benefit the country but the banks:
“Someone, after all, had lent it all that money. In particular, German banks, led by the troubled Commerzbank, held some 17 billion Euros of Greek debt. The exposure of the German private sector, including pension funds, insurance companies and thrifty burghers searching for yield, came to as much as 25 billion Euros, a considerable fraction of what the Greek government owed. What was at stake, in other words, was not just the solvency of the Greek government but the stability of the German financial system.” (Eichengreen - Hall of Mirrors)
Here he agrees with Lapavitsas, the gadfly former Greek Finance Minister. “The real threat posed by the sovereign debt crisis has been to the banks of the core. In early 2010 there emerged the danger of a full-blown crisis for the banks of the core that held significant volumes of peripheral debt. It thus became that the sovereign debt crisis was a continuation of the great upheaval that began in 2007.” (Lapavitsas et al. - Crisis in the Eurozone)
In addition peripheral country banking systems were under more strain because countries like Greece had run balance of payments deficits with more successful trading partners, borrowed from the core net exporting nations and gone into debt to pay for their imports. In effect Greek banks were being lent money by banks in countries like Germany to lend to Greeks in order to buy German products. This relationship caused stresses to the structure of the euro. So, within the Eurozone, the crisis was perceived as a crisis of the euro.
So the Troika acted to bail out the French and German banks, not the Greek people. They transferred the debt from the private banks to themselves. The burden of the debt was not cancelled, but laid on the Greek economy, crushing it and asphyxiating the people, like the huge rock Sisyphus was doomed to roll uphill in vain for ever. The Greek national debt remains at a monumental, and unpayable, 180% of the country’s GDP to this day.
The IMF knows the debt is unsustainable and some of it will eventually have to be written off. But within the councils of Europe the German and Austrian governments in particular are determined to have their pound of flesh. In effect successive Greek governments have been impotent, prisoners of decisions taken by the Troika. The country was a colony in all but name. Has that changed? Even after the bailout Greek government spending will be under foreign control for the next 42 years.
As the end of the Troika programme was announced, Prime Minister Tsipras proclaimed, “This is a day of liberation.” He’s wrong. The pain is not over.
Apart from bailing out the banks, the sole concern of the Troika was to preserve the euro, which was seriously under threat at the time of the crisis. Pressure was put on successive Greek governments not to devalue by withdrawing from euro membership. That could have brought the whole rickety structure of the eurozone tumbling down. The advanced capitalist countries were effectively trying to block off one escape route from endless austerity for the Greeks.
One option for the radical Syriza government elected on an anti-austerity ticket in 2015 was devaluation, plus imposing capital controls and nationalising the (effectively bankrupt) Greek banks, while repudiating the monstrous debt. That would have been a blow against capitalism, the cause of the hardship. In July 2015 61% of the Greek people voted to reject the austerity terms of a bailout in a referendum. Syriza’s leadership then bottled it, bent the knee to the Troika and submitted the country to further austerity and humiliation.
Austerity has produced only misery. The damage to the economy has been deep and long lasting. For the Greek people the bailout has been a catastrophe.