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EU Scrooges Spoil Greeks’ Christmas

21st December 2016

EU Scrooges Spoil Greeks’ Christmas

By Mick Brooks

The Syriza government in Greece decided recently that they had a little money available to take the sharp edge off never-ending austerity. They decided to:
• Hand out €617m (less than 0.5% of Greek Gross Domestic Product or GDP) to I.6 million pensioners surviving on less than €800 per month.
• Relieve the Aegean islands from VAT. Apart from their remoteness, the eastern islands have borne a terrific burden of supporting thousands of refugees, without support from the EU.
• Promise a grand total of €11.5m on free school meals for poor children.

The European Stability Mechanism (ESM), the enforcer of Eurozone rules, stepped in with knuckledusters. They decided to cut off all debt relief to punish Greece for this insubordination.

How did the Greeks get the money? It wasn’t found down the back of a sofa. The Greek government is actually running a budget surplus, getting in more money than it spends. (By contrast the UK is running a state deficit of nearly £50 billion a year.) Unfortunately the surplus is not running down Greece’s monumental public debt, currently running at more than 175% of GDP. That is because so much of the money raised just seeps out of the country to pay the country’s creditors.

How did the Greek government get to run a surplus? The ESM has put the country on starvation rations, far worse than what we have experienced in the UK.  Greek GDP fell as sharply as did the US and German economies in the Great Depression of 1929-33. The social consequences have been catastrophic, such as mass unemployment and hospitals without medicines. The Financial Times commented in 26.01.15, “To service its debt burden would require Greece to operate as a quasi slave economy, running a primary surplus of 5% of GDP for years.” The ESM is determined to rub Greek noses in it.

The explosion of Greek debt was part of the mad boom in bank lending that led to the crash in 2008. The overriding need for the powers that be in the wake of the Great Recession was to rescue the banks which had triggered the world economic crisis in the first place.

Barry Eichengreen is an American economic historian, so he might be expected to be impartial on this. He points out that it was not the Greek people but the mainly French and German banks that were rescued in the ensuing bail-out.

“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.” (Hall of Mirrors)

Wolfgang Schauble, the German Finance Minister, opines, “Whatever role the markets have played in catalysing the sovereign debt crisis, it is an indisputable fact that excessive spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare.” In this view the Euro crisis is a pure sovereign debt crisis. The Greek government was spendthrift. The crisis is just a product of human frailty.

Brigitte Young disputes this. “It is one of the great misnomers to call the present Eurozone debt crisis a sovereign debt crisis. The reality is that the European sovereign debt crisis started when the debt of the private banking sector was transformed into public sector debt via bail-outs.” (The power of Ordoliberalism in the Eurozone crisis management)

Blythe and Newman support Young’s view and call Schauble’s opinion the “greatest swindle of modern times perpetrated on the European Public by their governments on behalf of their banks.” (Thanks to Germany it’s 2008 all over again)

What actually happened in the Greek bail-outs from 2010 was the transfer of the private banks’ debt to the Troika (the European Commission, the European Central Bank and the International Monetary Fund).

The Syriza government was swept to power in 2015 on a wave of hatred against how Troika-imposed austerity had ruined the country. In July there was a referendum on bail-out conditions. 62% voted ‘Oxi’ (No). Then PM Tsipras and the majority of Syriza MPs capitulated to the Troika. Tsipras is trying to regain a tiny bit of his anti-austerity credentials with the proposed reforms, but has been ruthlessly slapped down by international finance capital.

LESSONS

Myth: The Greeks were and are a bunch of spendthrifts.
Fact: The banks threw money at them recklessly, as they were doing everywhere before the crash.

Myth: The Greeks have been bailed out by the financial authorities.
Fact:  The financial authorities have bailed out the banks – at the expense of the rest of us. The Greek people are still suffering the consequences.

Myth: Austerity is necessary when a country gets into debt.
Fact: Austerity doesn’t work. At present the Greeks see no way out for them.

Myth: The Troika is offering Greece debt relief.
Fact: Greece is a quasi slave economy in thrall to the Troika. The country’s debts are its chains.

It is clear the Greek debt is insupportable. Further payments are due next year. Moody’s credit rating service has already expressed its concern that Greece can’t pay. In Italy a banking crisis seems to be looming. In particular Banca Monti dei Paschi says it could run out of money in four months.

Capitalism is a failed system.