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 Movement for 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.