It’s a cliff-hanger. Greece…will it go into default? Will it get EU bailout number 2 of over a hundred billion dollars? Will its current socialist administration fall putting the government into crisis? Will the people continue the daily revolution, now in its third week, occupying the streets and town squares? Will the crisis – and the revolution – travel to Spain next?
“We’re not gonna pay for your crisis,” the people are chanting in the streets. Why should the poor have to pay for the mistakes of the rich?
What is going on. Greece is on the brink of default, which means it is not going to be able to pay its debts. This means that its debts would be rescheduled, and would be a major event in the finance world, sending ripples across the finance globe. The stability of the Eurozone, the financial entity backing the euro, is at stake. The reason is because if Greece does not pay the substantial debts owed to its creditors, such as a number of banks, then those institutions, having counted on this revenue, risk not being able to pay their debts, and might collapse themselves (and then their creditors face the same situation, and so on).
The problem comes from the global financial meltdown of 2008. Some of the weakest economies in the Eurozone were the hardest hit, including Greece, Spain, Ireland, Portugal, and Italy. Since these economies are tied to the Maastricht treaty of the Eurozone, their governments’ hands are tied as to the interventions they can make (they cannot devalue their currency, which would make their exports more competitive).
As in the US, there were two important reactions to the crisis. One was a bailout of the financial institutions. Rather than let them collapse, and deal with the major ripple effect that would cause, the governments opted for an emergency influx of funds to pay off these institutions’ debts. Hence, the CEOs and the whole financial class that helped cause the problem basically got a free lunch (on the backs of US taxpayers). The second reaction to the crisis is part of the “shock doctrine,” whereby governments use the crisis as an opportunity to push forward economic measures that would ordinarily meet great resistance. We have seen this doctrine in play a lot recently, for example in Wisconsin when the Republican majority successfully pushed through some historical anti-union laws. (1)
In Europe, something similar happened. In 2010, the International Monetary Fund bailed out Greece (100 billion), Ireland (85 billion), and Portugal (85 billion), the so-called “PIIGS” of the eurozone. That’s a lot of money. But it came with plenty of strings attached. In the case of Greece, the government had to sign up for “austerity measures.” This means that the IMF is able to compel the Greek government to follow the ideals of the IMF – which seems a bit like extortion to me. These ideals are neoliberal orthodoxy: stop helping the poor, let “the market” decide on wages and living standards, no matter how this affects people. (2) The Guardian reports:
The terms of a second bailout are tough, including a 10% cut in public spending, and a 33% reduction in the public wage bill. Greeks have already been hit by tax rises and pay cuts, and there is deep anger against politicians of all parties, as well as the IMF.
And in the words of a Greek reporter:
“the cravenness of the economic and political elites…ordinary citizens in Greece…are now being called upon to pay for the sins of banks and politicians who have failed to regulate…”
1. Note that such a high level of legislative capture by the finance industry, and with a government so thoroughly infiltrated by finance, this comes as no surprise. Note, for example, the Obama appointments of Timothy Geitner and Ben Bernanke. Note the enormous campaign contributions of Citibank and Morgan Stanley and others to both presidential candidates and political parties. For more information specifically on the financial meltdown, its causes, and the problems with government interactions with the finance industry, see the recent documentary “Inside Job,” narrated by Matt Damon. See also the 60 minutes documentary “The 2008 Financial Crisis” here; the Frontline documentary on the crisis here and here. Also, see further explanation of the Naomi Klein’s analysitical concept of the shock doctrine in my posts here and here.
2. It is rather ironic that neoliberalism still has currency at all in the financial world, since it is precisely these doctrines that caused the collapse in the first place. But we should note that the financial world is incentivized to support these policies, since they make them very, very rich. Consider the recent IMF head Dominique Strauss-Kahn made $500,000 a year (420,000 non-taxed plus 75,000 expenses acct.
3. This Guardian piece answers some of the basic questions. This Socialist Worker piece offers some decent political analysis. A great array of photos + explanations of last week’s protests can be found here.Vodpod videos no longer available.