Merkel’s monetary imperialism and the death of democracy

by Jerome Roos on May 30, 2011

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Negotiations are going on for an effective abolition of Greek national sovereignty in what the Financial Times has called an “unprecedented outside intervention in the Greek economy.”

Believe it or not, the European Union is set to ‘peacefully’ annex Greece, essentially putting the country’s economy under direct conservatorship of the northern European surplus countries and their powerful financial interests.

Terrified of the prospect of a Greek default — which would mean a ‘haircut’ of 50-70 percent for some major German and French banks, which are exposed to Greek debt to the tune of $119 billion — EU leaders are pushing for a second bail-out, under conditions so severe as to effectively abolish Greek sovereignty.

Negotiations are currently going on that, according to the Financial Times, “would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens.”

Also in the conditions is another round of severe austerity measures — of the kind that led to last year’s lethal street riots and that fueled last night’s 100,000-man march on Parliament. It is becoming increasingly clear that the Greek people will no longer accept the EU’s current approach.

But what other options do we have?

To understand how to get out of this crisis, we have to understand the basics of how we got into it in the first place. Too many lies and falsehoods have been peddled in the mainstream media for too long. It’s time for facts.

The Real Causes of the Crisis, in a Nutshell

Ever since the introduction of the euro, Germany has benefited enormously from a systematically undervalued currency, making its products much cheaper for foreign consumers and thereby greatly boosting its exports. This has allowed the Germans to accrue large surpluses, which were subsequently saved up and put into the bank.

German banks, then, had the task of finding a profitable place to invest all this surplus capital. This is what David Harvey has called the ‘capital surplus absorption problem‘. Greece, in the meantime, had the opposite problem. Ever since accession into the eurozone, the relative value of its currency shot up and its competitiveness collapsed.

With its permanently overvalued currency and membership of a European single market, Greece found itself stuck between a rock and a hard place: it could neither compete with the high-tech capital-intensive European core (i.e., Germany), nor with the low-tech labor-intensive global periphery (i.e., China). Growth slumped, the economy stagnated.

As a result of sluggish growth rates and a terribly ineffective tax collection system, the Greek government began running large budget deficits (it is simply not true, by the way, that the Greek debt was caused by excessive welfare expenditure: Greek public spending/GDP ratio is actually below the EU average and lower than Germany’s).

Either way, in order to finance these deficits, Greece had to sell bonds to foreign investors. Fortunately for Greece, at the time at least, the world’s rating agencies weren’t doing their jobs properly. With so much excess liquidity floating around the global financial system, and with investor risk obscured by complex financial products (like the currency swaps that Goldman Sachs sold Greece), virtually any investment was deemed safe and profitable.

And so Standard & Poor’s gave Greek bonds a triple-A rating, even though the underlying economic fundamentals were becoming increasingly worrisome. Growth was anemic and everyone was fully aware of the budget deficits the government was running. Yet there was a global financial feast and no one wanted to spoil the party by crying wolf.

Greece’s ratings allowed European banks to increase their leverage and make a handsome profit by buying up Greek sovereign debt. The market did its job: Greece needed an excess of money, and the European banks were looking to get rid of just that. Greece was now addicted to debt — and the banks were its fully-conscious crack dealer.

The Myths about the Crisis, in a Nutshell

Now, in hindsight, we all know how reckless and stupid this was on the part of both the Greek government and the northern European banks. Yet despite the overwhelmingly obvious mistakes that were made by German and French banks in their the reckless pursuit of profit, the blame for the crisis has fallen squarely on the shoulders of the Greeks.

European leaders, and their liberal intelligentsia in the media and academia, have viciously attacked Greece’s “excessively burdened welfare state” as the root of the crisis. As we pointed out before, this is a persistent myth. There is, however, an even more persistent myth — one that borders on outright racism: that the Greeks are simply too lazy.

Just last week, German Chancellor Angela Merkel called on the people of southern Europe to “work more.” In a display of the near-absurdist narrow-mindedness and nationalistic prejudice of our political elite, Merkel appears to believe — or at least wants to make us believe — that the Greek crisis was caused by lazy workers sitting in the sun all day.

The truth is that the Greek people work more than any other European people (43.1 hours per week, according to 2005 EU statistics, compared to 35.7 in Germany). But these lies, of course, serve a much greater purpose. First of all, they are meant to appease an increasingly restless and inward-looking electorate in the North, which is staunchly opposed to helping the Greeks — or helping anyone, for that matter.

Secondly, and even more insidiously, shifting the blame onto the Greeks is meant to distract the world from the one and only real problem that Europe is facing at the moment: namely that our banks our insolvent. Indeed, as Wolfgang Münchau recently pointed out in Foreign Policy, Europe is a profound state of denial about the health of its own banks.

It is exactly because of the reckless investments that were made during the boom that German and French banks — just like the Spanish and Irish banks — are sitting on top of billions of euros worth in toxic assets. Unlike the Spanish and Irish banks, these assets are not overvalued mortgages, but overvalued southern European bonds and private loans.

In this respect, a Greek default would seriously harm these already shaky banks. What Merkel and friends are doing, therefore, is desperately trying to save their own crack dealers by keeping Greece addicted to debt. Instead of allowing the Greeks to kick the habit by defaulting, the bailout loans only put them in debt-servitude of their new European masters.

Partisans Rise: Join the Pacifist Resistance for a Real Democracy!

Today, Merkel is doing economically what Germany failed to achieve militarily 70 years ago: she is effectively annexing the European periphery in an attempt to serve Germany’s national interests. By destroying Greek sovereignty, Merkel is threatening to drown the European child of democracy in its historic homeland.

Indeed, the EU as a whole keeps infusing the drug of cheap credit into an already emaciated European periphery, telling the people to forsake food so they can repay the drug dealer who got them into the trap in the first place. To put it in the language of the Godfather, European banksters press their local patrons to keep extending soft credit lines (no pun intended) to the Greeks, in the hope that this will allow them to keep paying pizzo to the bag man.

Meanwhile, the two only real options of kicking the Greek debt habit are systematically ignored. As Münchau pointed out in the Financial Times yesterday and we pointed out on this blog two months ago, Europe should either (1) allow a Greek default and exit from the eurozone, or (2) to set up permanent welfare transfers under the aegis of a democratically-elected European government.

Either way, democracy will have to be restored — either through national or through transnational institutions. The present arrangement, where the financial interests of the North have given an imperial edge to the EU’s crisis response, is profoundly undemocratic and unaccountable to the needs, concerns and wishes of the European people.

As Stéphane Hessel wrote last year, it is time for outrage. Tens of thousands of Greeks are already heeding the call by taking to the streets. Last night, 100,000 people marched on Parliament to demonstrate against the draconian EU-IMF austerity measures and demand a real democracy now.

If Europe proves unwilling to develop a European democratic government that would set up permanent welfare transfers from the North to the South, in order to compensate for the South’s permanently overvalued currency, the people of Greece should simply draw their own conclusions and leave the eurozone.

Either way, Europe will have to embrace the inevitable: a Greek default is coming sooner or later, and many European banks are insolvent. It’s time for Europe to stop fiscally bleeding the Greeks to solve its own financial crisis. And it’s time for the Greek people to let them know it.

{ 10 comments… read them below or add one }

David May 30, 2011 at 23:17

Exemplary article man. We may not always be exactly on the same spot in the political landscape, but you’re an excellent writer (and seem to increasingly become a leading voice for these concerns, which is awesome). One thing I’d argue with: ultimately whoever borrows money needs to pay it back if they at all can, whether or not the loan was intially a good move on either the investor or the borrower’s part. The money German banks loaned to Greece is in the end German money, made through in part due to judicuous self-interested policy-making on the part of German leaders. If in contrast Greek competitiveness was profoundly hurt by adoption of the Euro, then they should have bolted earlier. In the same way, the fact that the Chinese keep funding US debt does not make this debt any less real, or the money any less Chinese. Unfortunately the Greek people are now paying a steep price for incredible past mismanagement on the part of their elected leaders– but that precisely is a function of living in a democracy.


Jérôme E. Roos May 31, 2011 at 15:02

Hey David! Thanks for the kind words man, I really appreciate your attentive reading and constructive criticism of my articles — it keeps me on edge and forces me to think critically about my own preconceptions and always double-check my facts :) Plus, you’re one of the few people who actually take their time to read these longer articles. Since I have huge respect for your intellectual firepower, that means a lot to me!

On the question of debt repayment, I agree with you *in principle*. Of course I believe that if you borrow money, you have an obligation to repay it. This is the rule I would always try to abide by in my personal life. Yet the messy reality of global finance and political economy is much more complex than this ethical rule of thumb would suggest. I would note two points in particular:

1) When a bank lends money, it takes a risk. After all, that’s the essence of lending: it’s essentially a market transaction where A (the borrower) pays a price, in the form of interest, to compensate B (the bank) for the risk that it might not actually get its money back.

When the market functions perfectly (which it of course never does), the interest rate is set at such a rate as to always compensate the bank for the inevitable defaults of some of its borrowers, while always leaving a bit extra for the banks’ shareholders (profit, of course).

Now, since the market does not function perfectly (mostly as a result of imperfect information, bounded rationality and all that), the interest rates the banks charged Greece were fundamentally undervalued (i.e., if the banks and rating agencies had properly assessed the risks associated with lending to Greece, the interest rates would have been much higher and Greece would never have piled up the debt it did).

In other words, the build-up of the debt was not just the outcome of Greek mismanagement — it was just as much (and I would argue much more) the result of mismanagement on the part of the financial sector and structural dynamics in the Greek, European and global economy.

So my conclusion is very simple: the banks took a risk in lending to Greece, and by incorrectly assessing that risk, they are now stuck with an insolvent borrower. Bad luck, the loan went bad. That’s why we have bankruptcy procedures in our national legal codes — which essentially institutionalize the conditions for an orderly default. But such a code does not exist at the international or European level.

Still, we need one, because Greece is bankrupt, it cannot reasonably be expected to keep servicing its debt at the social and economic price it will have to pay for it. It’s over. Suicide rates in Greece have nearly tripled since the start of the crisis. Are we willing to worsen an economic depression and unleash a humanitarian tragedy in our own periphery, just to uphold a rather simplistic ‘ethical’ code that a borrower should always repay his debts?

2) Excellent point, of course, comparing Greek debt to Germany with Chinese debt to the US — but I don’t think the two are comparable :) The reason is that the US debt to China is of a different order altogether, as it results mostly from its ‘seigniorage’ position in the global economy: since the dollar is the world’s reserve currency, all the world’s surplus countries are piling up US T-bills in their reserves, allowing the US to keep printing dollars indefinitely on the back of this Chinese surplus financing.

The Greek debt is very different. As I explained in this article, it results from the necessity of compensating for a permanently overvalued currency (and the stagnant growth rates resulting from it) following entrance into the eurozone. While the US has had the ‘privilege’ of living beyond its means, the Greeks were almost structurally forced to live beyond their means.

The correct analogy here, I would argue, is with the sub-prime borrowers in the United States: poor Americans suffering from wage stagnation ever since the 1980s were tricked into sustaining their old consumption patterns by being offered non-transparent low-interest loans that put them neck-deep in debt, while the banks knew full well that any default would (as long as house prices kept rising) still be profitable for them, as they could just foreclose upon the mortgage, appropriate the property, and sell it on the burgeoning housing market.

What the European banks did with Greece was very similar: Greece was never really credit-worthy, but Goldman invented cross-currency swaps that served the exact same purpose as its CDOs: it obscured the risk of lending to a credit-unworthy borrower, thereby greatly expanding the market. All of a sudden, millions of poor Americans and dozens of peripheral economies were magically transformed into credit-worthy bank customers.

The rating agencies did the same. S&P slapped a triple-A rating on Greek bonds because if they didn’t do it, some other rating agency would, meaning S&P would fall behind in the bond-rating market. And so the European banks lent, lent, and kept lending. Just like the US banks, they knew they were too big too fail, and they knew any Greek default would be prevented by the EU.

In other words, the playing field was structurally slanted to produce exactly the type of debt build-up that Greece and the sub-prime borrowers experienced. When a crisis is structural, and the bill arrives, I think everyone should take equal responsibility. After all, we didn’t blame the US subprime mortgage crisis upon “lazy African-Americans” (although some neocons certainly tried) and we shouldn’t have expected them to pay back predatory and mismanaged loans either.

That said, clearly our disagreement on this issue derives exactly from what you highlighted: our different positions within the political landscape :) Which is something I’m really glad we can play out and debate in an intellectually stimulating and personally respectful manner!


Theodoros June 1, 2011 at 09:29

We need to make a real and substantial effort to help people in Greece, particularly vulnerable men who see themselves made weak and disenpowered by these circumstances, people have no psychological fail safe for failure to support their families and their fragile egos. We need strong outreach for the Greek people to cope with being isolated and unemployed, at the mercy of circumstances beyond their control. They have no coping mechanisms or social institutions to ease their stresses and explain that it’s NOT their fault that they, their children, their husbands and wives are penniless and depressed. Seriously , the Greek people need help on many levels to cope with this unprecedented assault on their self esteem as individuals and as a nation.


Jérôme E. Roos May 31, 2011 at 15:12

Wow, that was a long ass reply, sorry for that haha!


Julien Febvre September 20, 2011 at 17:39

“but that precisely is a function of living in a democracy.”
I am afraid that this is not a democracy. It is a liberal oligarchy. Democracy means the effective participation of all the people in power, participation in decisions making and taking rather than expecting from a bunch of representatives to sort out the problem. Calling this system as democracy is like you saying that the inquisition was a blessing.

Our main fault is that we had been extremely tolerant with our politicians. We should had woken up years ago. Nevertheless no x-PM attempted to explain us the situation. Greek government (both the liberals of New Democracy and the progressives of PASOK) borrowed money, investing in Olympic games projects of 2004. (Many opposition parties, especially the leftists, did not welcome this exchange. The leftists actually, most of them, never wanted Greece to join the EU). However, between 2001 and 2005 there was small economic progress. People had faith that the 2004 projects would create more jobs. But most of the money were ending up to government’s pockets, but nobody could understand it, or to be fair, nobody could imagine the amount of money that MPs and government stuff were stealing. (Most of the people are not able to deal with economics and statistics. Not everybody understands economic terms. People judge according to what they can see, and what everybody could see was a very small economic progress, as said above. Small of course, but at least it was something comparing with the stagnation of the previous years). A few knew what was going on.

When the financial turmoil hit European and American markets in Greece, the political elites used to tell to the public “everything is fine”, “the Greek economy is not affected by the crisis…” and other similar demagogue BS. As long as there was no sign of serious crisis, they thought of “stealing some more…”. During the 2008, the situation exploded. The revolt of December, brought up to the surface all the problems of our society. Unemployment, lack of future, corruption (check: Vatopedi scandals), impunity… all these troubles existed before in our society, but the revolt of 2008 made everybody explode and condemn the situation, saying that “enough is enough”. The liberal government was ready to collapse. Karamanlis (the president of New Democracy) saw that his days in power were counted and called for elections. PASOK massively won and the liberals experienced their biggest defeat in history. After that, Karamanlis announced publicly his resignation. (After that day, he has not appeared again in any TV broadcast, nobody knows where he lives, nobody has ever seen him, except a few cases). PASOK before the elections claimed “green development”, “green jobs”, said openly that “money exist” and other BS… But instead of fixing the situation, the PM, Papandreou said “finally money don’t exist” and started looking for bail out from the EU and IMF which Greeks don’t want. It seems that New Democracy left PASOK to clean up the mess, but PASOK instead of trying to find a way out of this mess, continues what the ND would do…

See this


Killuminati May 31, 2011 at 18:07

Awesome explanation … thank you very much for that !!


Polydeykis June 2, 2011 at 23:07

What an article JEROME! I posted it on my blog so that people know! I Hope you dont mind. If you do please let me know so i can drag it out!

Thank you!


Jérôme E. Roos June 3, 2011 at 13:33

Thanks for the kind words and for helping spread the word!


George June 8, 2011 at 09:30

Love your article,
I was an engineering consultant in the USA and moved to Greece in 1990.
I have worked with industrial, commercial, private, public, domestic and foreign sectors in Greece.
In short I represent a part of the wheel that keeps the carriage moving.
Greece has become a dead market. The entire carriage is broken.
Although my knowledge and skills border the super human category for my profession I feel as if I am standing still.

My family was forced to leave Greece in 1968. We were outcasts from our home.
History may repeat itself for most.
I am a father of three, my oldest an Engineer with a masters in Germany and recognition in the professional sector.
Now that I have established who I am, Here are my observations.

Greece is suffering from a lack of morals

1-Families are separating offering no support.
2-Cooperation is non existent.
3-Greed and corruption are everywhere.
4-Self interests are above all others.

How do we address these problems?
start with the first, break it down and begin.
Family is what moves the Greek economy. Most businesses are family owned.
Bring them back. Offer real start up tools for these people.
Help to make them competitive.
Added taxes to everything exploits them in absurd ways.
Gas, petrol are family movers. The current prices have halted all family activities.
Government set up a structure that stops abusing good doers and rewarding criminals.

We have finally come out of our shells. Danial is no longer an option.
Mistakes are no longer forgiving.
We have the people and resources to create new roads, if only these people
would fight for their rights to do just that.

I personally believe the current financial , judicial and political systems have exceeded their benefit ratio and all need major overhauls.


Elena June 16, 2011 at 00:53

Great article! I couldn’t agree more. Refreshing compared to most articles out there about the (greek) crisis, of which I have read too many…

Keep it up!


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