What's Going On In Greece?
by Gaius Publius
Just a fast comment, a quick hit, since I'm on deadline editing an interview. The recent news is that the left-wing Syriza party has won the Greek general elections, sparking concern that Greece might default on its debt, on purpose, and exit the euro. Naturally the holders of that debt, led by Germany, are aghast at the prospect. The word "irresponsible" comes up.
Here's Paul Krugman on that (my emphasis):
Ending Greece’s NightmareRead the rest here. It's pretty insightful.
Alexis Tsipras, leader of the left-wing Syriza coalition, is about to become prime minister of Greece. He will be the first European leader elected on an explicit promise to challenge the austerity policies that have prevailed since 2010. And there will, of course, be many people warning him to abandon that promise, to behave “responsibly.”
So how has that responsibility thing worked out so far?
To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.
You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was already in recession when the deal was reached, but the projections assumed that this downturn would end soon — that there would be only a small contraction in 2011, and that by 2012 Greece would be recovering. Unemployment, the projections conceded, would rise substantially, from 9.4 percent in 2009 to almost 15 percent in 2012, but would then begin coming down fairly quickly.
What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. Greece didn’t hit the bottom until 2014, and by that point it had experienced a full-fledged depression, with overall unemployment rising to 28 percent and youth unemployment rising to almost 60 percent. And the recovery now underway, such as it is, is barely visible, offering no prospect of returning to precrisis living standards for the foreseeable future.
What went wrong? I fairly often encounter assertions to the effect that Greece didn’t carry through on its promises, that it failed to deliver the promised spending cuts. Nothing could be further from the truth. In reality, Greece imposed savage cuts in public services, wages of government workers and social benefits. Thanks to repeated further waves of austerity, public spending was cut much more than the original program envisaged, and it’s currently about 20 percent lower than it was in 2010.
Yet Greek debt troubles are if anything worse than before the program started. ...
What's not being said is that this nightmare is part of the plan. As I've written many times, during times of bubble-creation — Europe and the U.S. before 2008, for example — hot money floods smaller markets, looking for profit. In Europe, all of the countries that were or are in "trouble," like Spain, Iceland, Italy and Greece, saw huge inflows of capital. Then the bubbles burst, especially the housing bubble, and that hot money flowed out, withdrew, leaving mountains of debt that "must be paid." Leaving also lower wages and deflationary prices.
How does a person or country who has no capital pay its debts? By selling off its assets until it's wholly owned by outsiders, then starving, if the outsider so wishes.
Which is where we are today. The only country listed above not to be starved into submission was Iceland, who kicked the bankers out in a national election some time ago and forced debt-holders to eat the debt. Greece, on the other hand, tried to repair itself on terms good for the debt-holders, and it's being eaten. Syriza has a (belated) opportunity to correct that error, though as Ian Welsh points out, much of the damaging privatization has already been done. (Did you know that selling off, "privatizing," the ancient Athenian port of Piraeus was part of the austerity demands? Piraeus was a Greek port before Socrates was born.)
As Krugman points out in his conclusion, the Syriza solution may not be radical enough to produce a real recovery from depression, and it's unlikely that Greece will exit the euro soon — the ultimate, though painful, solution, in my opinion.
Still the song of the austerians these days is ... every banker must be made whole; every bond must be paid in full. It's dishonorable, for others, not to honor a contract. Right. Tell that to any number of U.S. corporations who declare bankruptcy before breakfast in order to dishonor union contracts and pension obligations before lunch.
They, the concentrated holders of capital, are trying to have it both ways, be paid without having to pay in their own turn. Greece, for a change, is fighting back. So far, they're fighting back with the Syriza party instead of the fascist Golden Dawn party ... so far.
SCHEDULE NOTE: Next post at 11am PT/2pm ET