Here’s a cleaned-up version of a conversation I just had about Greece’s sudden U-turn on the rescue deal negotiated just last week. Enjoy.
Are the Greeks crazy?
No, they’re just at the end of their tether. Europe is asking them to adopt more austerity than they’re willing to bear.
Okay, but they’re spending too much money. Surely they know they have to cut back?
Sure, but the deals on offer are pretty unattractive. Europe wants to forgive half of Greece’s debt and put them on a brutal austerity plan. The problem is that this is unrealistic. Greece would be broke even if all its debt were forgiven, and if their economy tanks they’ll be even broker.
But that’s the prospect they’re being offered: a little bit of debt forgiveness and a lot of austerity.
Well, them’s the breaks.
But it puts Greece into a death spiral. They can’t pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There’s virtually no hope that they’ll recover anytime in the near future. It’s just endless pain. What they need is total debt forgiveness and lots of aid going forward.
That doesn’t sound like a very attractive option for the rest of Europe.
No, it’s not.
So maybe they should just let Greece default and wash their hands of them.
Here’s the thing, though: Greek debt is largely held by German banks that made the loans. [See update below.] If Greece has been irresponsible, so were the German banks that happily loaned out the money. So if Greece defaults, the banks go kablooey. But they’re too big to fail, which means the German government would be forced to bail them out. And guess where the bailout money comes from? Tax dollars.
(1 November 2011)
Creditors can huff but they need debtors
Martin Wolf, Financial Times
Blessed are the creditors, for they shall inherit the earth. This is not in the Sermon on the Mount. Yet creditors believe it: if everybody were a creditor, we would have no unpaid debts and financial crises. That, creditors believe, is the way to behave. They are mistaken. Since the world cannot trade with Mars, creditors are joined at the hip to the debtors. The former must accumulate claims on the latter. This puts them in a trap of their own making.
Three of the world’s four largest economies – China, Germany and Japan – are creditors: they run current account surpluses, in good and in bad times (see charts). They believe they are entitled to lecture debtors on their follies. China, an ascendant superpower, enjoys berating the US for its imprudence. Japan, a US ally, is more discreet. Germany’s ambitions are closer to home. It wishes to turn its eurozone partners into good Germans, instead.
… Within creditor countries, the producers of tradeable goods and services are a powerful lobby for the supply of credit to debtors. Private funding will halt once financiers realise how bad their lending has been. Policymakers are then caught between throwing good money after bad or tolerating brutal adjustment, as their markets disappear. In punishing profligate borrowers, they also damage their own citizens.
This story lies behind what is happening to the world.
(1 November 2011)
Greece referendum: Democracy versus the eurozone
Gavin Hewitt, BBC
Many were cursing the Greek leader George Papandreou yesterday. Certainly European officials and certainly the leaders of France and Germany.
They complained they had not been forewarned or consulted about his proposal to put the rescue deal to the people.
They believed, in a rash moment, the Greek prime minister had jeopardised the eurozone bailout plan so painfully constructed in Brussels last week.
As a result, another plan – like so many of its predecessors – was in doubt after just five days.
For whatever reasons, George Papandreou was standing up for democracy.
For two years, outsiders and international officials have dictated terms to Greece. They have insisted on the austerity packages that have changed so many Greek lives.
Now they will be given a chance to vote on all this. It may well be that Mr Papandreou has chosen the referendum option to save his own skin.
(1 November 2011)
Robert Kuttner, The American Prospect
The Greek prime minister takes the country’s fate out of the hands of the bankers.
Greek Prime Minister Georgios Papandreou startled Europe and the financial world Monday by announcing that he will be calling a referendum on the terms of the latest deal negotiated by European leaders and bankers.
What is the Greek leader up to?
On one level, Papandreou is simply weary of being the agent of his own country’s economic destruction at the hands of bankers. He also is tired of the political unpopularity that comes with the role of broker of austerity.
But more important, Papandreou is resisting a double-cross already being cooked up by the bankers. He is playing the one card he has: If the bankers walk away from the partial debt relief committed in principle at the recent EU summit, Greece will default. And Papandreou wants that decision to be made, knowingly, by the Greek people and not by technocrats.
Here is what’s happening behind the scenes.
Charles Dallara, negotiating on behalf of the bankers, agreed to a 50 percent reduction in the amount of Greek government debt held by banks (a “haircut”), but the bankers are already trying to take a much smaller loss by monkeying with the fine print. By varying the details of interest rates and payback periods, bankers could end up losing a lot less than 50 percent—and Greece could end up getting a lot less than 50 percent debt relief.
Bottom line, Greece could wind up right back in the austerity trap, where the more the Greeks tighten their belts to pay debt, the more the economy collapses under them.
(2 November 2011)
Greek referendum: Papandreou’s gamble could pay off
Larry Elliot, Guardian
On the face of it, the decision by the Greek prime minister, George Papandreou, to hold a referendum on the latest bailout package looks like an act of political hari kari. Certainly that was the kneejerk response of the markets, which sold off heavily overnight and continued tumbling in Europe this morning. No question, the announcement of the plebiscite has put an end to last week’s rally in response to the emergency measures announced at the Brussels summit. The next couple of months until the referendum is held will be a white-knuckle ride as investors contemplate what would happen if the Greeks say no. What worries the markets is that Papandreou’s gamble backfires, the referendum is lost, the European Union and the IMF refuse to stump up any more money, Greece runs out of money, Greek banks go bust, the country defaults in a disorderly way and leaves the single currency, and a domino effect is triggered in other countries such as Spain and Italy.
But will this actually happen? Perhaps not. For a start, Papandreou may win the referendum. Polls in Greece have shown that 60% of the population are against the terms of the bailout but 70% are against leaving monetary union.
(1 November 2011)
Shaking the System: A Greek Gift to Occupy USA
Margaret Kimberley, Black Agenda Report
The Greek government, after months of demonstrations by a citizenry that rejects impoverishment for the sake of the bankers, has promised to submit the bailout plan to a referendum. This should be a lesson to the Occupy Wall Street movement and the U.S. public in general: force the issue, or the issue will be forced upon you. “Americans think that backing two political parties who are both eager to work in the interests of banksters is a solution to averting a disaster despite the fact that the disaster never ends.”
The European debt crisis is but one symptom of the crisis in which the capitalist system finds itself. The years of accumulated “fictitious” capital, followed by a succession of ruptured market bubbles, were all signs that the system is like Humpty Dumpty, unlikely to be put back together again.
Greece is the current focus of attention, with American markets rising or falling based on the status of negotiations among the Eurozone leadership. Greece’s “partners” agreed to bail out that nation only on the condition that it impoverish its citizens. Yet because of sustained protest against the austerity measures, the prime minister has promised his people a referendum on the plan, which has thrown domestic politics and international finance into a state of turmoil.
… The Occupy Wall Street movement should sit up and take notice. Their consensus organizational structure and national assemblies upon which it is based began in Europe. The OWS organizers would do well to repeat European actions taken against the 1% and the members of political class who are eager to do their bidding.
It is well and good to say that the OWS movement is finding its way, but if it doesn’t notice what happens when people take mass action, then they aren’t ready for the big leagues. Three years ago the American people were told that they would suffer if Wall Street was not bailed out with their money. The TARP deal went forward with the collusion of both Republicans and the then Democratic nominee, Barack Obama and the rest of his party.
The results of that capitulation have been calamitous.
(2 November 2011)
Greece: going under
Michael Roberts, The Next Recession
The Greek prime minister George Papandreou’s call for a referendum on the bailout package agreed with the EU leaders and the IMF sounds like a move towards democracy. The Greek people are apparently going to be asked whether they want to accept or reject massive cuts in living standards, public services and employment in return for money to fund their government’s debt payment to Europe’s banks, insurance companies and pension funds that are refusing to lend to them.
But this is really a political manoeuvre by Papandreou. He is surrounded on all sides by opposition to the deal: from within his so-called ‘socialist’ party; from the trade unions; from the right and left opposition; and from the people (according to polls, 60% are against the deal). His name is mud. The Papandreou family has been ruling Greece on and off ever since the war. He wants to save his name. So he is trying to appear as the “innocent” and simply as the executor of voter’s intentions to get out of the hole he has put himself in. If he loses the vote on Friday, he can resign or call for early election without losing his face. If the parliament endorses the referendum, he can claim that the outcome is the voter’s wish which he needs to follow. He is using the typical tactic of a leader in a corner: a straight vote to shut everybody up: either accept the deal with the dreaded Troika or face being kicked out of the Eurozone and an even worse situation for the Greek populace. This is not really a referendum aimed at giving the Greek people a chance to decide their future; it is really a statement along the lines of “you are having one leg broken; but if you don’t agree to that, then both legs will be broken.”
The referendum may never happen. Papandreou has got the reluctant backing of his Cabinet but he may lose the confidence vote for his government in parliament this Friday night.
… There is another alternative that the referendum (if it takes place) or an election could provide. The Greek people could reject the Troika package and the government could decide to default, Argentina-style, on all its debt held by the private sector (the banks, insurance companies and private pension and hedge funds). That would cut Greek government debt by €200bn, or 80% of GDP at a stroke, halving its debt burden immediately. It could also insist that the official or public sector holders of its debt (namely, the EU governments, the emergency EU fund, the ECB and the IMF) agree to, say, a five-year grace period where there is no repayment and also a reduction in the interest they are charging. In that way, the burden of the remaining debt would be reduced sharply. The EU could also release the EU structural funds available for economic growth and jobs, worth about 6% of Greek GDP. This would provide an opportunity for the government to restore public services and increase employment (especially of tax collectors to find the missing billions that the 1% of rich Greeks have not being paying).
Reneging on its debts would mean that the Greek banks would be bust and the public sector social security fund would be seriously in deficit. But the EU deal already agreed to fund more money for the banks. They could be brought straight into public ownership and organised to provide credit for an expansion of investment, instead of buying government bonds. The social security fund could be replenished too. The government could impose capital controls on any attempt of the rich and the big corporations to spirit their cash out of Greek banks and abroad (although they have been allowed to do that already!).
No doubt, the EU leaders would refuse to accept such a ‘renegotiation’ of the bailout package. But a real socialist government in Greece could mount a huge campaign to convince other socialists in Europe and Europe’s people, that driving Europe into a slump in order to meet payments to the very banks and financial institutions that caused the crisis is the wrong way and there is an alternative.
(2 November 2011)