As is well known, Greece’s sovereign debt, at 179 percent of GDP or thereabouts, and amounting to some €320bn, is entirely unsustainable. Without yet more loans, Greece’s financial obligations (ie, the wages and pensions of state employees and its loan repayments as they become due) cannot be met – Greece is therefore bankrupt.
Any further loans it did receive would only increase its debt repayment obligations for the future. If it can’t pay lesser sums now, how will it pay larger ones in the future?
Where Greece stands at present
This situation has been ongoing for a good five years, with Greece almost universally being expected to default on debt repayment when due in the immediate future, although this immediate future has now managed to be postponed for months. We cannot but sympathise with Peter Spiegel, trying to keep up with events for the Financial Times, when he wrote:
“There have been so many ‘make-or-break’ moments for Athens since Greece’s debt crisis first shook markets five years ago, that it is difficult to know when things might really break.” (‘Greek bailout talks near ‘drop dead’ moment’, 8 May 2015)
However, the signs are growing ever stronger that the end is nigh. In February a ‘lifeline’ was thrown to Greece, as explained by the Editorial Board of the New York Times:
“European leaders have avoided a potential catastrophe by extending for four months a bailout programme to rescue the Greek economy. They did not, however, resolve any of the big problems that have grounded the economies of Greece and other eurozone countries.
“The extension will keep the money flowing from a loan programme of €240bn, or about $272bn, that has provided much-needed cash to the Greek government, which is unable to borrow money in the private market. As a condition of the loans, Greece’s lenders – the 18 other countries that use the euro, the European Central Bank and the International Monetary Fund – have forced it to raise taxes and cut spending, depressing its economy.
“The good news is that there is now more time to work out an agreement to stimulate Greece’s economy and reduce the unnecessary suffering of its people.” (‘Four months to get it right on Greece’, 25 February 2015)
Now though, only €7.2bn of those bailout funds remain to be disbursed, and Jeroen Dijsselbloem, as chairman of the eurozone finance ministers’ group, is ordering the withholding of payment until after Greece’s Syriza led government implements creditors’ demands for yet more austerity – which Syriza can only do if it reneges on its prominent election promises.
Syriza’s strategy for dealing with Greece’s economic problems is to make the rich pay – principally by clawing back the money that they have amassed as a result of tax evasion (an amount estimated at €76bn). It has, however, been argued that the European Finance Ministers, who have taken over negotiations with Greece from the Troika, in their capacity as lobbyists for the big European banks, strongly oppose this particular method of putting Greece’s economy on a sounder footing.
This is because, it is claimed, the kleptocrats in question have deposited their ill-gotten gains in various European banks (especially German ones), whose funds would be severely depleted if the kleptocrats in question were forced to return this money to Greece. In other words, rather than the banks continuing to enrich themselves on Greek interest payments, as at present, not only would these interest payments be reduced but a sizeable portion of bank capital would go too. (See ‘Making Greece pay’, Information Clearing House, 25 February 2015)
Be that as it may, the remaining €7.2bn has to date not been released, although even if it were, the ‘lifeline’ it represents would not hold out for long. In March alone, for instance, €4.3bn in debt payments became due – and equally eye-watering sums will be due in months ahead.
In fact, according to Liz Alderman of the New York Times, “From April through August, Greece will need to finance an additional €10.2bn in Treasury bill redemptions and repay approximately €3.17bn to the IMF and €6.5bn to the European Central Bank” – a cool 20 billion euros! (‘Greece proposes using tourists as tax spies to fill shortfall’, 7 March 2015)
Not surprisingly, therefore, there has been talk of a third Greek bail-out: ie, of Greece borrowing even more unserviceable debt to pay its existing unserviceable debt – although all parties, for their various reasons, have denied this.
“‘We are negotiating a third rescue for Greece’, Luis de Guindos [Spanish economy minister] told a conference in Pamplona. The minister added that the Spanish government, which has been locked in a war of words with Athens in recent days, would contribute 13-14 percent of the bail-out. The accord would provide for ‘flexibility’ and would include fresh conditions for Greece.” (‘Greece in talks for third bail-out of up to €50bn, Spain says’ by Tobias Buck, Financial Times, 3 March 2015)
Since there is not even talk of a further substantial write-off of Greek debt (a ‘haircut’), a third bail-out is the only alternative if Greece is to remain in the euro or even the EU – although, again, increasing Greek indebtedness will obviously not solve the problem in the long term.
In order to avoid default, and in accordance with austerity conditions imposed by the International Monetary Fund and the European Central Bank when offering Greece ‘bailout’ loans (at tidy rates of interest), the Greek government has been forced to pare its social spending back to the bone. Salaries and pensions have been slashed, employees have been given the sack, spending on supplies for schools and hospitals has been reduced to practically nothing, and infrastructure maintenance neglected.
More recently, the Syriza-led government – which has pledged not to deepen austerity, but has in fact even re-employed some public-sector workers sacked by the previous administration – has taken to raiding local authority funds in order to scrape together the cash to pay the IMF when repayments were due in April, topping up by borrowing from an IMF reserve loan fund to repay the IMF! It looks very much like the government, to keep its anti-austerity pledges, is simply dumping on local authorities an obligation to sack people instead of the government doing it!
Moreover, the reserve fund had only some €695m in it, and €650m are said to have been withdrawn – so this is not a trick that can be pulled again.
Another problem that Greece is facing is the fact that depositors are withdrawing money from Greek banks in the expectation that the banks themselves will go bust. As we wrote in our February issue: “Another headache awaiting Syriza is the likely bankruptcy of Greek banks. As in Cyprus not so long ago, no sooner had the rumours of trouble started to circulate than the rich started to withdraw their money from Greek bank accounts. Three billion euros were withdrawn in December alone!
“If one considers that no fewer than 34 percent of Greek bank loans are non-performing (ie, not being repaid), and that this situation is going to get far worse as a result of investors shunning Greece in its current travails, and that the Athens stock market has dropped billions of euros in value over the past few weeks (reducing the value of shares that have been used as security for loans), it is clear that if Greece were to exit the Eurozone, and as a consequence the ECB were to cut its support (currently running at some €45bn) to Greek banks, these banks could run out of money – creating absolute chaos for workers and pensioners, who would lose access to the cash they need for day-to-day living expenses.” (‘Syriza victory in Greek elections’)
Since this was written, even more billions have been leeched out of the Greek banking system – between September 2014 and March 2015 bank deposits went down by €28bn, and undoubtedly the momentum has been maintained since. Without outside support, such as that which Greek banks currently receive from the European Central Bank, Greek banks would collapse under the strain.
Reportedly, European minister of finance Jeroen Dijisselbloem thinks that the theft of billions of euros in Cyprus went so “swimmingly”, that he called that it a “template for Europe”. (‘Dijisselbloem: Eurogroup president spooks markets by saying Cyprus deal is a new template’ by Matthew Boesler, Business Insider, 25 March2013)
Dijisselbloem is a partisan of removing ECB support and letting the banks settle their debts at the expense of depositors, who are, technically speaking, unsecured creditors of the bank. This is how money belonging to Cypriot depositors was effectively confiscated to pay their banks’ secured debts (although in the event, after massive protests rocked Cyprus, the banksters were persuaded to leave the first €100,000 of each depositor’s money untouched).
Were this to happen, even if, as in the case of Cyprus, small depositors were protected, it would amount to a confiscation of the capital of innumerable Greek businesses, leading to mass lay-offs of workers, innumerable bankruptcies and yet another precipitous decline in Greek GDP – which has, under the burden of debt repayments, already been shrinking vertiginously (ie, by a quarter in the last five years alone).
The need for debt forgiveness
In the face of all this economic chaos, Greece’s creditors, especially northern European banks, are continuing to take a very hard line – insisting on full repayment of debts through the imposition of deeper and deeper austerity and yet more sales of sovereign assets. They reject all talk of any ‘haircut’ and would undoubtedly oppose any debt restructuring unless a huge proportion of Greek economic output were handed over to them, leaving the Greek people with their cupboards bare.
This stubborn stance in face of the obvious reality that austerity has already done massive damage not only to the Greek people but also to the Greek economy – reducing, rather than enhancing, Greece’s ability to pay its debts – has become quite incomprehensible to many financial commentators. Dimitri Papadimitriou wrote recently in the World Post (an associate of the Huffington Post):
“The economist John Maynard Keynes made probably the most powerful case -- certainly the most eloquent -- for large-scale financial forgiveness when, at the 1919 conference to end WWI, the Allies required a destitute Germany to make reparations.
“As a member of the British delegation, Keynes countered the view of the war’s winners that it was right and just for Germany to be treated harshly, saying ‘The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable ... even if it did not sow the decay of the whole civilised life of Europe’ ...
“Keynes believed that the reparations were well beyond what Germany could possibly pay, and predicted that the fruitless demands would lead to crisis in Germany and repercussions throughout Europe.
“History confirmed that the righteousness of the Allies would eventually end in failure, with the ruined German economy a major factor in the rise of Nazism.”
Applying these ideas to Greece, which is, after all, innocent of the war crimes that gave rise to Germany’s liabilities, Mr Papadimitrious continues:
“Greece has endured five years of righteously fuelled austerity policies. The sole goal has been high fiscal surpluses to improve its debt-to-GDP ratio.
“On the street, that has meant a brutal economy where more than half the population is hungry, the suicide rate has increased 35 percent since 2011, and hundreds of thousands of households can’t afford electricity. ‘For the misdoings of parents or rulers,’ young people have reached an unemployment rate of more than 50 percent.
“The current approach has resulted in the largest peacetime decrease in GDP of any developed country in modern history. To continue the current repayment programmes would mean more of the same – and an even deeper recession.”(‘Greek debt – do the right thing’, 3 May 2015)
Even the IMF is losing patience with the unwillingness of the Europeans to accept that they are going to have to take a haircut and is threatening to hold back its own contributions to the Greek bail-out (half the outstanding €7.2bn) if they continue in their stubborn stance. (See ‘IMF takes hard line on aid as Greek surplus turns to deficit’ by Peter Spiegel, Financial Times, 5 May 2015)
How the Greek debt crisis escalated
What needs to be understood in the first place is that the whole idea of Greek ‘profligacy’ having caused the economic crisis in Greece – and that therefore Greece deserves to be punished (even if Keynes would have advised it should be forgiven) – is totally misconceived.
Greece’s problems arise from the world capitalist crisis of overproduction. It is a misfortune not of Greece’s making that its one major industry was shipping, because it is shipping that was most severely hit when the economic crisis broke out, as was explained at the time by Bloomberg Business:
“Shipping benefits from globalisation more than almost any other sector. But this has also made it more vulnerable to the global economic crisis. Freight and charter rates have plunged, jobs at shipping companies are being cut and many ships are being parked for months at a time.
“The anxiety began in the summer, when the long lines disappeared: the kilometre-long lines of trucks waiting to get into the container terminals outside Los Angeles, one of the most critical bottlenecks of globalisation in recent years, or the long queues of container ships jostling for spots at the entrance to Hong Kong harbour, often waiting for days for a berth.
“Instead, what is backed up today is the once hotly sought-after merchandise, as electronic goods and textiles pile up in Chinese factories, now that consumption has declined, first among Americans and now in Europe. Iron ore and other minerals are piling up in South American mines, because the Chinese no longer need as much of the natural resources to produce goods.
“Many ships are now sailing half-empty, if they are sailing at all. In fact, shipping companies are pulling more and more ships out of circulation, due to a lack of demand, and placing them at anchor indefinitely. Experts estimate that one-fourth of all ships used to transport raw materials in the Pacific are now idle.
“Until recently, shipping was plainly globalisation’s booming industry, its hammering pulse, pumping more and more goods around the world at an ever-increasing pace. But the financial crisis has brought this activity to an unexpected halt. Although the pulse is still beating, it is no longer the fast and powerful pulse of a sprinter, instead it resembles that of a coma patient.” (‘Global crisis hits shipping industry’ by Thomas Schulz, 8December 2008)
Apart from tourism, Greece’s only other major business is agriculture, its major export market being Russia. But this is another lifeline that has been cut off as a result of Russian sanctions against the EU, which in turn were a response to the sanctions the EU so unfairly put on Russia as punishment for its non-existent ‘aggression’ in the Ukraine. However, by that time Greece was already in deep trouble.
Because Greece was in the euro, it could not simply leave inflation to take care of the government overspending that resulted from loss of shipping income. Instead, it had to resort to a combination of borrowing and cuts in government spending, with the traditional militancy of the Greek people and the continuing influence of the Communist Party seriously limiting the scope for cuts.
The effect of borrowing, however, as anyone who has maxed out on their credit cards will tell you, is exponentially to increase the cost of every purchase – and to be saddled with massive debt instalments long after it has ceased to be possible to buy anything more.
Those wedded to the capitalist system, like the Greek economist Jason Manolopoulos (of whom more below), are inclined to blame the Greek people’s defence of their living standards for Greece’s problems (although these living standards were always rather modest as compared to those of, say, Germany).
The truth, however, is that vast amounts of this borrowed money was used to prop up the economies of the lenders to a far greater extent than it assisted Greece, and yet more went into the pockets of profiteers, who spirited out of Greece and invested it in banks abroad or in London property – certainly not in creating businesses and job opportunities in Greece. Apparently, according to estate agents Knight Frank and Rutley, in April 2010, Greek buyers accounted for about 6 percent of all property purchases above £2m in London.
We can readily see why European banks were so keen to pour money into Greece when one considers that: “Defence spending by modern Greece is the highest, as a proportion of GDP, of any country in the European Union. According to a list published by the US Central Intelligence Agency, the figure stands at 4.6 percent, twenty-fourth in the world – on a par with China, just ahead of the USA.” (Jason Manolopoulos, Greece’s ‘Odious’ Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community, 2011, p71)
In terms of its population or the size of its economy, Greece ranks second in the world, after the UAE, for military expenditure.
Manolopoulos continues:
“Much of the lending to Greece in the boom years was by large northern European banks. These institutions, some of them based in France and Germany, were loaning billions of euros to the Greek government, much of which was being spent on arms purchases from the likes of Dassault and Krauss Maffei Wegmann. The role of French and German banks in making loans to assist the Greek purchase of French and German manufactured goods, for both civil and military uses, is a major element in the entire saga of the ballooning Greek public-sector deficit.” (Ibid, p75)
Of course, this spending can be categorised as ‘profligacy’, but this ‘profligacy’ was benefiting German and French industries and, be it said, also their employees. It should be noted that this ‘profligacy’ did not benefit at all the masses of the Greek working class, who are now expected to shoulder the burden through austerity.
Moreover, German and French multinationals have been caught out bribing Greek officials to authorise much-overpriced contracts. The focus is on how much the corruption of Greek officials is costing the Greek economy, but the real issue is how much of the money lent to Greece by French and German banks, who today are so unforgiving regarding repayment, is actually finding its way back to France and Germany in an illegitimate manner.
The German company Siemens has been caught out using bribes to secure a €500m OTE (Greek national telecoms) contract alone, the firm allegedly paid €35m in bribes in the late 1990s. Huawei tendered for this contract at half this price but failed to secure it.
Manolopoulos adds: “Siemens is not the only German company accused of paying ‘commissions’ to help it secure major Greek contracts. In the case of Ferrostaal the issues of military spending and alleged corruption become intertwined. German prosecutors have begun investigating whether bribes were paid by German company Ferrostaal to Greek officials in connection with a contract to supply the Greek navy with two submarines ...
“The US Justice Department has formally accused German car maker Daimler of paying bribes to officials in 22 countries. Greece is named on the list. Kathimerini reported in March 2010 on allegations that Daimler made corrupt payments to officials in Athens in connection with the purchase of 6,500 army jeeps. Investigations are ongoing.” (Ibid, p99)
The respected German magazine, Der Spiegel has as a result been forced to admit: “Greece’s rampant corruption is one of the reasons why the country’s economy is in such a mess. German companies have taken advantage of the system for years in order to secure lucrative deals.” (‘Complicit in corruption: how German companies bribed their way to Greek deals’ by Jörg Schmitt, 11 May 2010)
However, most of the money sucked out of Greece by the imperialist coterie has come in the form of ‘low price, high interest’. Lending to Greece has, as Manolopoulos rightly points out, been the equivalent of the subprime mortgage scandal in the US.
One of the effects of the crisis of overproduction is that capital finds it difficult to find ways to secure an acceptable rate of return on investment, so there is an excess of funds available to lend to others at interest. With such an oversupply of loan capital, interest rates tend to be low, even negative, but rates of return increase if the degree of risk increases.
With the subprime mortgages, very risky loans were made, but punters thought that they were protected by the security of the mortgaged properties. Unfortunately, it turned out that the ‘value’ of much of this property was created only by speculation – the other resort of idle capital – which collapsed when the oversupply of subprime housing became manifest.
With Greek loans, punters thought that although the Greek economy was shaky they were protected because the European Union could not allow Greece to default ... Well, the European Union is indeed reluctant to let Greece default, but it’s thinking about it. In the meantime, however, the money rolls in to the imperialist vaults.
The Russian dimension
Contradictions between US imperialism and European imperialism are also coming into play in the Greek context.
As is well known, the Syriza prime minister Alexis Tsipras has visited Moscow, where, according to official reports, he did not ask Russia for any financial help and nor was it offered. It is, after all, quite understandable that Russia has no interest in pouring money into Greek debt repayments for the benefit of European imperialist banks – as indeed it made clear two years ago when refusing to shore up Cyprus.
What could have been discussed, however, is what support Moscow might give Athens if it defaults, refusing to pay any more debts to the European financiers, and/or if Greece exits the euro and maybe even the EU. Should this happen, it would be followed by financial turmoil throughout the capitalist world, but particularly in Europe, and Greece too would face further difficulties.
Apparently, the EU finance ministers are braced to face this particular music. But US imperialism decidedly is not prepared to accept the possibility that Greece might pass from the European sphere of influence to the Russian one. What the Americans are seeing, according to Wealth Watchman, is that the Syriza government has “Questioned EU sanctions on Russia, and tried to soften their blow ... Openly talked of setting up military bases for Russia within Greek lands ... Spoken of acquiring Russian S-300 missiles from Moscow ... Has even been offered to join the BRICS Development Bank!”(‘Is this how DC plans to stop the Turk-Stream pipeline?’, 13 May 2015).
These concerns sent US Assistant Secretary of State Victoria Nuland (aka the Killer of Kiev) hotfooting her way to Athens, and, as Wealth Watchman explained:
“Brothers, if you think that the power-brokers in DC were there out of the goodness of their hearts, to help the Hellenes out of their solvency problem, you’re not seeing this rightly. The real reason for the visit was about Greece’s relationship with Russia.”
A report issued by the US embassy in Athens regarding the agenda of the meeting between Nuland and Tsipras stated that “During her visit she also discussed security and defence issues, Ukraine ... and energy issues. On the crisis in Ukraine, Assistant Secretary Nuland said that the United States and the European Union have had to impose sanctions on Russia because of the increasing rounds of aggression in eastern Ukraine.”
The only reason why Nuland could conceivably want to discuss ‘energy issues’ and Ukraine with Tsipras is because Russia is building a Turk-Stream pipeline that could potentially go through Greek territory, by-passing the Ukraine and earning Greece billions of dollars in transit fees.
With US imperialism having spent a small fortune to secure control over the Ukraine by placing there a puppet fascist government loyal to its interests, it is naturally determined to ensure that Russia should not be able to bypass Ukraine completely in delivering energy supplies to Europe. It is obviously desirable, from US imperialism’s point of view, to persuade the EU not to drive Greece straight into Russia’s arms – although there has been no suggestion that the US might help out with Greece’s liquidity problems if the EU continues to refuse to do so.
The explosion is imminent
The Greek explosion cannot be held off much longer. When it comes it is bound to be as traumatic as the Lehman Brothers collapse. Many impoverished European governments have guaranteed Greek loans and there is bound to be a domino effect that will leave Europe as a whole reeling – which will in turn have repercussions throughout the world.
Imperialist desperation will multiply, as will the drive to war that this engenders. Communists had better get ready.
> Syriza victory in Greek elections, Proletarian, February 2015
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