Israeli Defense Minister Moshe Ya’alon and his Greek counterpart Panos Kammenos have signed a security cooperation agreement between the two countries.
This came during a meeting on Sunday between the two ministers, according to Israel Radio.
Ya’alon praised the present military and security cooperation between Israel and Greece, which he says is expressed in the joint military exercises conducted by the armies of the two countries.
The Israeli air force held joint military exercises with its Greek counterpart last April that took place in Greek airspace and lasted for several days.
That Syriza has made mistakes isn’t in dispute: they themselves have admitted to two main ones.
1) They failed to recognize, despite early warnings from party members such as Costas Lapavistas, that the EU was negotiating in bad faith. The EU’s intention was never to reach an agreement but to destroy Syriza and with it the hope that the victims of the endless bleeding of austerity had any democratic recourse. Furthermore, the negotiations were themselves a tactic in that, as former finance minister Yanis Varoufakis now admits, they prevented him from focussing on the one thing which Syriza could have used in its negotiations: a viable plan to exit the Eurozone in a way which minimized disruption to the economy and maximize the chances that it would return to health in the shortest possible time.
2) We now know from Varoufakis that Syriza had “a small group . . . within the ministry, of about five people” that were planning in secret for a Grexit. This was, as he concedes, not even close to what was required to effect a viable transition to a new currency. Of course, no serious person should have any illusions that a Grexit would be “easy”, even with a massive investment in staff and infrastructure, any more than recovering from a major earthquake, hurricane or bombing of a nation’s major cities by a foreign power. Rather, just as a government is expected to prepare for disasters whether these are acts of god or attacks from hostile foreign powers, Syriza was derelict in failing to plan for what Varoufakis now accepts was “a coup” albeit executed not by “tanks” but by “banks”.
1) The Bankruptcy of “Speaking Truth to Power” Liberalism
Despite Syriza’s self-definition as “the party of the radical left”, much of its leadership and many of its advisers would reject the designation, more accurately being categorized within our political lexicon as liberals. Among these is Varoufakis’s close friend and UT Austin colleague Jamie Galbraith who described himself as “a reasonable and hopeful observer” of Syriza’s initial negotiations with the E.U. Rather than dismiss German Chancellor Angela Merkel as a right wing ideologue Galbraith praised her for “having made some of the mildest comments of any German politician,” and for having “chosen with care” her words on the subject of debt relief which, according to him, she had not rejected.
Galbraith’s report of the negotiations gave further grounds for hope that “the German government, having taken a very tough line through the process, took a step back from that tough line in order to secure a basic framework agreement for going forward.”
As we now know, the softening on the German’s hard line was a liberal chimera. Galbraith now recognizes that “the negotiations were a bit of a farce all along” and has admitted that he should have recognized that Chancellor Merkel was always “completely unreceptive.”
Varoufakis, while famously defining his political orientation as “Marxist” (albeit “erratic”) evidently shared Galbraith’s liberal confidence in the good will of the Eurocrat negotiators. This is apparent in his surprise when his attempts to reason with them were unsatisfactory-to put it mildly. According to his recent interview in the New Statesmen,
“It’s not that (they) didn’t go down well – it’s that there was point blank refusal to engage in economic arguments. Point blank. … You put forward an argument that you’ve really worked on – to make sure it’s logically coherent – and you’re just faced with blank stares. It is as if you haven’t spoken. What you say is independent of what they say. You might as well have sung the Swedish national anthem – you’d have got the same reply. And that’s startling, for somebody who’s used to academic debate. … The other side always engages. Well there was no engagement at all. It was not even annoyance, it was as if one had not spoken.”
What is on display is the disenchantment of liberals who operated on a presumption of good intentions and underlying rationality of elite technocrats. Radicals such as Lapavistas do not. For them, providing “arguments” to the institutional representatives of capital makes no more sense than addressing a hyena with its fangs clamped on one’s jugular. The hyena is acting not according to reason but according to its fundamental nature and so are the capitalist hyenas who were Syriza’s negotiating partners.
It was foolish to negotiate with any other expectation, as both Varoufakis and Galbraith now have effectively conceded.
2) Goldman Sachs DOES care (if you raise chickens)
A second explanation for one of Syriza’s crucial mistakes involves assumptions made by segments of their left, as opposed to (neo-) liberal wing, which includes Varoufakis and others who he refers to as “committed Europeanists.” By that he means that they are committed to the longstanding principle of left internationalism and cosmopolitanism. They also tend to view favorably the comparative advantage accruing to globalized trading networks which provide the economies of scale making possible large efficiencies in production of basic goods and also in making available raw materials at low cost. While their position is reasonable, it also has a negative side in that internationalists tend to denigrate the potential of local, small scale experiments in alternative economic systems of the sort which have been championed by Richard Wolff and Gar Alperowitz among others under the heading of worker self directed enterprises and workplace democracy.
Why this matters is that it is apparent that some form of what Wolff and Alperowitz are proposing will be crucial in the event of a Grexit. Prior to a national currency being re-established, local networks of production and exchange of the sort which globalization has long since eradicated will need to be revived and again made viable. That includes, incidentally, various forms of local food production of the sort denigrated by the verticalist left under the widely circulated meme “Goldman Sachs doesn’t care if you raise chickens.”
In fact, whether Greece will collapse into chaos and starvation will have to do with whether they are able to reduce their reliance on imported goods ramping up local production in all spheres including most crucially in food production-not as a neo-Calvinist moral imperative but to maintain a minimal caloric intake. It is likely that many small scale initiatives will need to be launched and developed to accomplish that, some along the lines the WW II Victory Gardens whose production equalled that of all commercial sources of vegetables during the war years. Of course, Goldman Sachs would like nothing better than for Greek efforts at self-reliance to fail which is to say they hope the Greeks don’t raise chickens-and starve for not having done so: the exact opposite of facile, leftish conventional wisdom.
Conclusion: No War but the Class War
While small, the Victory Gardens were not an insignificant contribution to a nation in a state of war. And, to reiterate the point, the comparison of a state of war to what will be required under a Grexit is entirely appropriate.
For while some of us want to avert our eyes, the left always recognized that the war by the rich against the poor is a war just as much as any other. An economic war does not involve missiles, antipersonnel weapons and M-16s. Its weapons are state enforced privatization schemes, debt swaps and interest rate manipulation. Rather than puncture wounds, severed limbs and the casualties take the form of thousands of unnecessary deaths due to inadequately staffed and supplied hospitals, bacterial infections due to inadequately maintained sewage treatment facilities and collapsing buildings, food poisoning epidemics due to the mass layoffs of inspectors in regulatory agencies. An almost endless list can be compiled itemizing the social collapse resulting from economic warfare carried about by fountain pens rather than guns. Varoufakis has now woken up to the reality that his country has been attacked by an axis of foreign powers, that they are bent on its destruction and have one goal in mind: claiming the spoils of victory, disbursing to their owners in the investor class. It is time the rest of the left joined him there and here-on our feet and ready to fight them, in whatever way we can.
Paris – On July 12, Greece surrendered abjectly and totally. Prime Minister Alexis Tsipras, who had promised to combat the austerity measures that are driving the Greek people to ruin, poverty and suicide, betrayed all his promises, denied the will of the people expressed in the July 5 referendum, and led the Greek parliament to accept an agreement with the nation’s creditors even worse than all those that had already caused the economy to shrink and which further abandoned the last scraps of national sovereignty.
Yes, Greece surrendered unconditionally, as has been thoroughly and eloquently expressed here on CounterPunch and elsewhere. But one crucial question appears not to have been adequately answered. To whom, exactly, did Greece surrender?
A common answer to that question is: Germany. The poor Greeks surrendered to the arrogant Germans. This theme has served to revive anti-German feelings left over from World War II. Frau Merkel is portrayed as the heartless villain. One thing is sure: the animosity between Greece and Germany aroused by this debt catastrophe is proof that the “European dream” of transforming the historic nations of Western Europe into one single brotherly federation, on the model of the United States of America, is a total flop. The sense of belonging to a single nation, with all for one and one for all, simply does not exist between peoples whose languages, traditions and customs are as diverse as those between Finns and Greeks. Adopting a common currency, far from bringing them together, has driven them farther apart.
But was this disaster actually dictated by the wicked Germans?
In reality, very many Germans, from the right-wing Finance Minister Wolfgang Schaüble all the way to the former leader of the left party “Die Linke” Oskar Lafontaine would have preferred a very different solution: Greece’s exit from the Eurozone. Schaüble was thinking of German finances, while Lafontaine was thinking of what would be best for the people of Greece – and of Europe as a whole.
Between those two extremes, a German compromise could have averted the abject surrender of July 12, by organizing Greece’s return to its national currency, the drachma.
Indeed, by the time of the Greek referendum, a majority of European Union creditor governments would have preferred to see Greece leave the Eurozone.
The one government that crowed with victory over the Greek surrender was the French government of François Hollande. In last minute negotiations, France took the position that Greece absolutely must be kept in the Eurozone, in order to “save Europe”. French commentators are jubilant that Hollande “stood up to Merkel” and saved both the sacrosanct “Franco-German couple” and the European Union itself by insisting that Greece stick to the hard currency that is killing it.
So can we conclude that Greece surrendered to France?
Let’s not be ridiculous. The French debt rivals that of Greece, with the difference, of course, that France has a real economy. France owns the largest share of Greek debt after Germany. But nevertheless, France is also eventually threatened by the Eurozone rules that are imposing debt servitude on southern European member states. France is in no position to dictate economic policy to Germany.
And that observation brings us around to the factor that has been overlooked in the case of Greece: the relationship of forces within the “trans-Atlantic community” and its military branch, NATO.
The United States has been relatively discrete during this crisis, but Washington’s will is known. Greece must stay tightly within the European Union, for geopolitical reasons. Just look where Greece is, and what it is: an Orthodox Christian country with traditional good relations with Russia, located on the Mediterranean not so far from “Putin’s Russia”. Greece must not be allowed to drift away. Period.
Another question that has been totally overlooked: is it possible for a NATO member country to shift policy in a way contrary to U.S. interests? Is it free to move toward truly friendly relations with Russia? Greece has seen a military putsch in the not so distant past. The command and control of NATO member countries is closely monitored by the United States military.
Since former President Nicolas Sarkozy reversed General de Gaulle’s strategic move to ensure national independence and returned France to the NATO command, France has indeed aligned itself with Washington to an unprecedented extent. With his brief show of “standing up to Madame Merkel”, François Hollande was in fact carrying out the policy of Victoria Nuland.
The European Union (including Germany) will continue to wrestle with its “Greek problem”, while Greece will continue to be strangled by the European Union.
The European surrender to the United States occurred about seventy years ago. It was welcomed as a liberation, of course, but it has turned into lasting domination. It was simply reconfirmed by the July 12, 2015, Greek surrender. And that surrender has been enforced by an increasingly hegemonic ideology of anti-nationalism, particularly strong in the left, that considers “nationalism” to be the source of all evil, and the European Union the source of all good, since it destroys the sovereignty of nations. This ideology is so dominant on the left that very few leftists dare challenge it – and Syriza was leftist in exactly that way, believing in the virtue of “belonging to the European Union”, whatever the pain and suffering it entails. Thus Syriza did not even prepare for leaving the Eurozone, much less for leaving the European Union.
As a result, only “right-wing” parties dare defend national sovereignty. Or rather, anyone who defends national sovereignty will be labeled “right-wing”. It is too easily forgotten that without national sovereignty, there can be no democracy, no people’s choice. As the Greek disaster obliges more and more Europeans to have serious doubts about EU policy, the mounting desire to reassert national sovereignty faces the obstacle of left-right stereotypes. Much of the European left is finding itself increasingly caught in the contradiction between its anti-nationalist “European dream” and the destruction of democracy by the EU’s financial bureaucracy. The Greek drama is the opening act of a long and confused European conflict.
Diana Johnstone is the author of Fools’ Crusade: Yugoslavia, NATO, and Western Delusions. Her new book, Queen of Chaos: the Misadventures of Hillary Clinton, will be published by CounterPunch in September 2015. She can be reached at email@example.com
European creditors should either write down a massive amount of Athens’ debt or give Greece a 30-year grace period if they want it to recover and repay, according to a Reuters’ report citing International Monetary Fund (IMF) officials and a secret study.
Taking into account Greece’s growing financial needs, its debt situation is “unsustainable,” according to the latest IMF projections contained in a confidential report obtained by Reuters. The new data, sent by the IMF to EU governments late on Monday after a new Greek bailout plan was agreed upon in principle, states that the 86-billion-euro program will not save Greece from financial collapse.
The updated debt sustainability analysis, which is said to have been released by the fund now that several media outlets have leaked the data, calls for a considerable portion of the Greek debt to be written off.
“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM [European Stability Mechanism bailout fund],” the IMF paper says.
According to the leaked study, Greece’s debt will peak at nearly 200 percent of economic output in the next two years, standing at 170 percent of GDP even by 2022. Previously published estimates had put the figures at 177 percent and 142 percent respectively.
The IMF now estimates that Athens’ gross financing needs will rise above the “safe” 15 percent of GDP threshold and continue rising in the long term. Moreover, even those projections “remain subject to considerable downside risk,” the study said
A 30-year grace period on servicing the Greek European debt, including new loans, would have to be provided by the European creditors, as well as a significant maturity extension, the IMF believes. Otherwise, the creditors would have to make annual fiscal transfers to the Greek budget or accept “deep upfront haircuts” on their loans, the report says.
Greece is in need of much greater debt relief than European governments are willing to acknowledge, and this measure is needed to let the Greek economy recover, a senior IMF official told Reuters late on Tuesday.
“I don’t think this is a gimmick or kicking the can down the road… This is a dramatic measure to take the entire European stock [of debt] and reprofile it,” for Greece to have a chance of “getting some growth back,” the official said on condition of anonymity.
For the IMF to remain involved in financial aid for Greece, its debt must be deemed “sustainable” by the fund – something which the latest study does not believe possible.
“Borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades,” the paper says, challenging the assumption voiced by some European officials that in 2018 Greece will already be able to meet some of its financing needs by going to the markets.
The publication of the IMF report comes on the heels of other disclosures, such as German Finance Minister Wolfgang Schaeuble revealing that some members of the government in Berlin would have preferred that Greece take a “time-out” from the eurozone rather than give it another bailout.
Meanwhile, the new debt sustainability figures for Greece had reportedly been given to European finance ministers on Saturday – well before the Monday deal was concluded.
The timing of the leak coincides with Greek Prime Minister Alexis Tsipras’s attempt to convince his parliament that accepting the deal is the only option if Greece is to remain in the euro and avoid economic collapse.
Tsipras gave a live TV interview defending the deal ahead of Wednesday’s parliamentary session that is to decide the issue. The outcome of the vote is far from certain, with many of the Syriza leader’s fellow party members unhappy with the new bailout plan.
While revealing he “does not believe in” the bailout plan, Tsipras argued that the deal was the only way for Greece to stay in the EU – something that he said was a “one way street” option imposed on the Greeks. However, he claimed that he had still managed to win certain concessions such as avoiding wage and pension cuts and securing ‘fresh money’ from European states.
“This has nothing to do with economics. It has nothing to do with putting Greece back on the rails towards recovery.”
— Yanis Varoufakis, Jul 13, 2015
Alexis Tsipras, along with his crew of negotiators, had done much with little. His Syriza government had been fighting a war of attrition with creditors and, with the hectoring Yanis Varoufakis, parried them for weeks. But the European credit system does, however, demand more than its pound of flesh. It demands those who do not play by the rules – and these rules are of the most dubious import – surrender their sovereignty.
On Tuesday, Tsipras faces an internal revolt after making a three year deal with Eurozone leaders that would see the accumulation of more debt – another 86 billion euro bailout – to service an already crippling burden. It also sees greater involvement of the International Monetary Fund, the grand bugbear of austerity finance.
Instead of exiting a system weakened by its own internal contradictions and failings, Greece is to partake in another mistake wrapped in the rhetoric of pro-European kitsch. In what is tantamount to placing a gun to the head of Greece’s sovereignty, parliamentarians will have till Wednesday to finalise what effectively amounts to a suicide pact.
The accord effectively sees the German-led Eurozone group demand control of Greek finances without the provision of debt relief or even a vague sense of genuine debt restructuring. This is a creditor’s vision on steroids, absurdly ambitious and destructive.
Varoufakis saw it coming, calling it “worse” than any other deals placed on the table before. “I trust and hope that our government will insist on debt restructuring, but I can’t see how German finance minister [Wolfgang Schäuble] is ever going to sign up to this. If he does, it will be a miracle” (New Statesman, Jul 13).
Independent Greek leader Panos Kammenos had made his opposition to another round of austerity concessions crystal clear and unimpeachable. “In a parliamentary democracy there are rules and we uphold them.” Energy Minister Panagiotis Lafazanis and Deputy Labor Minister Dimitris Stratoulis have both expressed public opposition to the measures and risk the sack. Given the calculations in store, Tsipras will have to rely on the pro-European opposition parties, who were resoundingly beaten in the referendum.
The entire arrangement reeks of a seizure of sovereignty, the use of debt bondage and creditor supervision instead of the customary weapons associated with a military invasion. Further to the usual barbarities of savaging the local economy, be it increases in value added taxes, cutting pensions and the placing of automatic spending constraints, a jumbo sale of 50 billion euros worth of public assets is being forced upon Greece. Greece, in other words, is effectively being told to sell itself into private hands.
Money obtained from that sequestration of assets is to be placed in a trust fund that will be beyond government hands, another absurdly dangerous measure that will remind Greek citizens where their referendum voice has gone. Tsipras could only say that the agreement had “averted the plan for financial strangulation.” In truth, the Eurozone leaders had rounded up on him in a feast of vengeful savagery, instigating moves that will further cause a constriction in the economy.
Merkel’s austerity fanatics have not covered themselves in glory. They have supervised a sickly vision of capture and control, using austerity as their weapon of choice. Merkel has herself been asked to compare the brutal agreement being demanded of Greece to Germany’s own Versailles Treaty of 1919, where indebtedness and bondage took centre stage in a punitive arrangement. “I won’t take part in historical comparisons, especially when I didn’t make them myself.” Sleepwalking in history can prove to be a dangerous habit.
European Commission President Jean-Claude Juncker, forgetting his own reservations about the legitimacy of the Troika’s demands, threw up the customary straw man in the argument. Grexit was to be avoided at the cost of Greek sovereignty. “The agreement was laborious, but it has been concluded. There is no Grexit.”
Astonishingly, he suggested that the compromise had seen “no winners and no losers. I don’t think the Greek people have been humiliated, nor that the other Europeans have lost face. It is a typical European arrangement.”
This, says Varoufakis, is precisely the problem. The Troika was insincere from the start, refusing to genuinely deal with the crisis while offering inconceivably crushing terms. Bad faith was their game; illegitimacy was their spirit. (Varoufakis repeatedly noted throughout negotiations that the Eurogroup has no legal standing, yet possesses enormous power over individual Europeans.) “The other side insisted on a ‘comprehensive agreement’, which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything.”
The next chapter in this poorly minted odyssey, one of tragic proportions, is whether the Greek parliament gives its approval to the accord. The Germans will take their turn on Friday, with Merkel having to butter MPs up with a needlessly punitive arrangement that is nothing more than economic sadism. Should the package pass in these parliaments, we would have seen a financial coup d’état in the making, and one that weakens all parties. Now that promises to be an all too typical European arrangement.
Dr. Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: firstname.lastname@example.org
In recent weeks, there has been much discussion about what to do about Greece. These questions become all the more relevant as the country attempts to float a multibillion-euro bond issue later this week. The Financial Times has called this fund-raising a critical test of Greece’s credibility in financial markets as it battles with a spiraling debt crisis and strikes. The “credibility” of the financial markets is an important consideration in a country which has functionally ceded its sovereign ability to create currency, and thus remains dependent on the vagaries of the very banking institutions which helped create the mess in the first place.
Maybe Greece should secede from the European Union and default on its euro debt? Or go hat-in-hand to the International Monetary Fund (IMF) to beg for loans while promising to clean up its act? Or to the stronger Euro nations, hoping for charitable acts of forgiveness? Unfortunately, all of these options are going to mean a lot of pain and suffering for an economy that is already sinking rapidly.
And it is questionable whether any of them provide long term viable answers. Polls show that given the perception of fiscal excesses of Greece and the other countries on the periphery, the public in Germany opposes a bailout of these countries at its expense by a significant margin. Periphery countries such as Ireland that have already undertaken harsh austerity measures also oppose the notion of a bailout, despite-nay, because of — the tremendous pain already inflicted on their own respective economies (in Ireland’s case, the banks are probably insolvent as well). The IMF route is also problematic, given that Greece probably doesn’t qualify under normal IMF standards, and many euro zone nations would find this unpalatable from an ideological standpoint, as it would mean ceding control of EU macro policy to an external international institution with strong US influence.
The Wall Street Journal recently highlighted an article by Simon Johnson and Peter Boone, lamenting that the demands being foisted on Greece and other struggling Euronations would “massively curtail demand, lower wages and reduce the public sector workforce. The last time we saw this kind of precipitate fiscal austerity — when nations were tied to the gold standard — it contributed to the onset of the Great Depression in the 1930s”. Where we disagree with Johnson and Boone is the suggestion that the IMF be brought in to craft a solution. Any help from this organization will come with tight strings attached — indeed, with a noose around Greece’s neck. Germany and France would be crazy to commit their scarce euros to a bail-out of Greece since they face both internal threats from their own taxpayers and external threats from financial vampires who are looking for yet another nation to attack.
Here’s a more appropriate action: declare war on Goldman Sachs and other global financial firms that created this mess. Send the troops, the planes, the tanks, and the ships. Attack every outpost of the saboteurs on European soil. Blockade the airports and ports. Make Wall Street traders and CEOs fear for their lives, or at least for their freedom to travel. Build some Guantanamo-like facility to hold these enemy financial combatants until they can be tried, convicted, and properly punished.
OK, if a literal armed attack on Goldman is too far-fetched, then go after the firm using the full force of the regulatory and legal systems. Close the offices and go through the files with a fine-tooth comb. Issue subpoenas to all non-clerical staff for court appearances. Make the internal emails public. Post the names of all managers and traders on Interpol. Arrest anyone who tries to board a plane, train, or boat; confiscate their passports; revoke their visas and work permits; and put a hold on their bank accounts until culpability can be assessed. Make life at least as miserable for them as it now is for Europe’s tens of millions of unemployed workers.
We know that the Obama administration will not go after the banksters that created this global financial calamity. It has been thoroughly co-opted by Wall Street’s fifth column-who hold most of the important posts in the administration. Europe has even more at stake and has shown somewhat more willingness to take action. Perhaps our only hope for retribution lies there.
Some might believe the term “banksters” is too mean. Surely Wall Street was just doing its job-providing the financial services wanted by the world. Yes, it all turned out a tad unfortunate but no one could have foreseen that so many of the financial innovations would turn into black swans. And hasn’t Wall Street learned its lesson and changed its practices? Fat chance. We know from internal emails that everyone on Wall Street saw this coming-indeed, they sold trash assets and placed bets that they would crater. The crisis was not a mistake-it was the foregone conclusion. The FBI warned of an epidemic of fraud back in 2004-with 80% of the fraud on the part of lenders. As Bill Black has been warning since the days of the Saving and Loan crisis, the most devastating kind of fraud is the “control fraud”, perpetrated by the financial institution’s management. Wall Street is, and was, run by control frauds. Not only were they busy defrauding the borrowers, like Greece, but they were simultaneously defrauding the owners of the firms they ran. Now add to that list the taxpayers that bailed out the firms. And Goldman is front and center when it comes to bad apples.
Lest anyone believe that Goldman’s executives were somehow unaware of bad deals done by rogue traders, William Cohan reports that top management unloaded their Goldman stocks in March 2008 when Bear crashed, and again when Lehman collapsed in September 2008. Why? Quite simple: they knew the firm was full of toxic waste that it would not be able to continue to unload on suckers-and the only protection it had came from AIG, which it knew to be a bad counter-party. Hence on March 19, Jack Levy (co-chair of M&As) sold over $5 million of Goldman’s stock and bet against 60,000 more shares; Gerald Corrigan (former head of the NY Fed who was rewarded for that tenure with a position as managing director of Goldman) sold 15,000 shares in March; Jon Winkelried (Goldman’s co-president) sold 20,000 shares. After the Lehman fiasco, Levy sold over $6 million of Goldman shares and Masanori Mochida (head of Goldman in Japan) sold $56 million worth. The bloodletting by top management only stopped when Goldman got Geithner’s NYFed to produce a bail-out for AIG, which of course turned around and funneled government money to Goldman. With the government rescue, the control frauds decided it was safe to stop betting against their firm. So much for the “savvy businessmen” that President Obama believes to be in charge of Wall Street firms like Goldman.
From 2001 through November 2009 (note the date-a full year after Lehman) Goldman created financial instruments to hide European government debt, for example through currency trades or by pushing debt into the future. But not only did Goldman and other financial firms help and encourage Greece to take on more debt, they also brokered credit default swaps on Greece’s debt-making income on bets that Greece would default. No doubt they also took positions as the financial conditions deteriorated-betting on default and driving up CDS spreads.
But it gets even worse: An article by the German newspaper, Handelsblatt, (”Die Fieberkurve der griechischen Schuldenkrise”, Feb. 20, 2010) strongly indicates that AIG, everybody’s favorite poster boy for financial deviancy, may have been the party which sold the credit default swaps on Greece (English translation here).
Generally, speaking, these CDSs lead to credit downgrades by ratings agencies, which drive spreads higher. In other words, Wall Street, led here by Goldman and AIG, helped to create the debt, then helped to create the hysteria about possible defaults. As CDS prices rise and Greece’s credit rating collapses, the interest rate it must pay on bonds rises-fueling a death spiral because it cannot cut spending or raise taxes sufficiently to reduce its deficit.
Having been bailed out by the Obama Administration, Wall Street firms are already eying other victims (and for allowing these kinds of activities to continue, the US Treasury remains indirectly complicit, another good reason why one shouldn’t expect any action coming out of Washington). Since the economic collapse is causing all Euronations to run larger budget deficits and at the same time is raising CDS prices and interest rates, it is easy to pick off nation after nation. This will not stop with Greece, so it is in the interest of Euroland to stop the vampires now.
With Washington unlikely to do anything to constrain Goldman, it looks like the European Union, which is launching a major audit, just might banish the bank from dealing in government debt. The problem is that CDS markets are essentially unregulated so such a ban will not prevent Wall Street from bringing down more countries-because they do not have to hold debt in order to bet against it using CDSs. These kinds of derivatives have already brought down an entire continent — Asia — in the late 1990s , and yet authorities are still standing by and basically doing nothing when CDSs are being used again to speculatively attack Euroland. The absence of sanctions last year, when we had a chance to deal with this problem once and for all, has simply induced even more outrageous and fundamentally anti-social behavior. It has pitted neighbor against neighbor-with, for example, Germany and Greece lobbing insults at one another (Greece has requested reparations for WWII damages; Germany has complained about subsidizing what it perceives to be excessive social spending in Greece).
Of course, as far as Greece goes, the claim now is that these types of off balance sheet transactions in which Goldman and others engaged were not strictly “illegal” under EU law. But these are precisely the kinds of “shadow banking transactions” that almost brought down the global financial system 18 months ago. Literally a year after the Lehman bankruptcy — MONTHS after Goldman itself was saved from total ruin, it was again engaging in these kinds of deals.
And it wasn’t exactly a low-level functionary or “rogue trader” who was carrying out these transactions on behalf of Goldman. Gary Cohn is Lloyd “We’re doing God’s work” Blankfein’s number 2 man. So it’s hard to believe that St. Lloyd did not sanction the activities as well in advance of collecting his “modest” $9m bonus for last year’s work.
If these are examples of Obama’s “savvy businessmen“, then heaven help the global economy. The transaction highlighted, if reported that way in the private sector, would be accounting fraud. Fraud – “Go to jail, do not pass Go” fraud. That senior bankers had no problem in structuring/recommending/selling such deals to cash-strapped governments should probably not surprise us at this point. However, it would be interesting to know if the prop trading desks of those same investment banks, purely by coincidence of course, then took long CDS (short the credit) positions in the credit of the countries doing the hidden swaps. A proper legal investigation by the EU could reveal this and certainly help to uncover much of the financial chicanery which has done so much destruction to the global economy over the past several years.
In this country, we have had a “war on terror” and a “war on drugs” and yet we refuse to declare war on these financial weapons of mass destruction. We all remember Jimmy Carter’s “MEOW”-the attempt to attack creeping inflation that was said to sap the strength of the US economy in the late 1970s. But Europe-and indeed the entire globe-faces a much more dangerous and immediate threat from Wall Street’s banksters. They created this mess and are not only profiting from it, but are actively preventing recovery. They are causing unemployment, starvation, destruction of lives, and even violence and terrorism across the world. They are certainly more dangerous than the inflation of the 1970s, and arguably have disrupted more lives than Osama bin Laden-whose actions led the US to undertake military actions in at least three countries. That should provide ample justification for Greece’s declaration of figurative war on Manhattan.
However, in an ironic twist of fate, it was just announced that Petros Christodoulou will take over as the head of Greece’s national debt management agency. He worked as the head of derivatives at JP Morgan, and also previously worked at Goldman-the firm that got Greece into all this trouble!
Dimitri Papadimitriou has recently made what we consider to be an important plea for moderation of the hysteria about Greece’s debt. Writing in the Financial Times, he complained that “The plethora of articles in your pages and others, some arguing in favour and other against a bail-out, contribute to market confusion and drive the country’s financing costs to record levels. It is not yet clear that a bail-out is even needed, but this market confusion is rendering the government’s ability to achieve its deficit goals ever more difficult.”
Indeed, we suspect that the same financial firms that helped to get Greece into its predicament are profiting from — and stoking the fires of — the hysteria. He goes on, “what Greece really needs now is a holiday from further market confusion being created by contradictory, alarmist public commentary”.
Greece, Euroland in general, and the rest of the world all need a holiday from the manipulation and destruction of our economies by Wall Street firms that profit from speculative bubbles, from burying firms, households, and governments under mountains and debt, and even from the crises that they create. Governments all over the globe should use all legal means at their disposal to ferret out the bad faith and even fraudulent deals that global financial behemoths are foisting on us.
Roosevelt Institute Braintruster Marshall Auerback is a market analyst and commentator.
L. Randall Wray is Professor of Economics at the University of Missouri-Kansas City.
An historic betrayal has consumed Greece. Having set aside the mandate of the Greek electorate, the Syriza government has willfully ignored last week’s landslide “No” vote and secretly agreed a raft of repressive, impoverishing measures in return for a “bailout” that means sinister foreign control and a warning to the world.
Prime Minister Alexis Tsipras has pushed through parliament a proposal to cut at least 13 billion euros from the public purse – 4 billion euros more than the “austerity” figure rejected overwhelmingly by the majority of the Greek population in a referendum on 5 July.
These reportedly include a 50 per cent increase in the cost of healthcare for pensioners, almost 40 per cent of whom live in poverty; deep cuts in public sector wages; the complete privatization of public facilities such as airports and ports; a rise in value added tax to 23 per cent, now applied to the Greek islands where people struggle to eke out a living. There is more to come.
“Anti-austerity party sweeps to stunning victory”, declared a Guardian headline on January 25. “Radical leftists” the paper called Tsipras and his impressively-educated comrades. They wore open neck shirts, and the finance minister rode a motorbike and was described as a “rock star of economics”. It was a façade. They were not radical in any sense of that cliched label, neither were they “anti austerity”.
For six months Tsipras and the recently discarded finance minister, Yanis Varoufakis, shuttled between Athens and Brussels, Berlin and the other centres of European money power. Instead of social justice for Greece, they achieved a new indebtedness, a deeper impoverishment that would merely replace a systemic rottenness based on the theft of tax revenue by the Greek super-wealthy – in accordance with European “neo-liberal” values — and cheap, highly profitable loans from those now seeking Greece’s scalp.
Greece’s debt, reports an audit by the Greek parliament, “is illegal, illegitimate and odious”. Proportionally, it is less than 30 per cent that of the debit of Germany, its major creditor. It is less than the debt of European banks whose “bailout” in 2007-8 was barely controversial and unpunished.
For a small country such as Greece, the euro is a colonial currency: a tether to a capitalist ideology so extreme that even the Pope pronounces it “intolerable” and “the dung of the devil”. The euro is to Greece what the US dollar is to remote territories in the Pacific, whose poverty and servility is guaranteed by their dependency.
In their travels to the court of the mighty in Brussels and Berlin, Tsipras and Varoufakis presented themselves neither as radicals nor “leftists” nor even honest social democrats, but as two slightly upstart supplicants in their pleas and demands. Without underestimating the hostility they faced, it is fair to say they displayed no political courage. More than once, the Greek people found out about their “secret austerity plans” in leaks to the media: such as a 30 June letter published in the Financial Times, in which Tsipras promised the heads of the EU, the European Central Bank and the IMF to accept their basic, most vicious demands – which he has now accepted.
When the Greek electorate voted “no” on 5 July to this very kind of rotten deal, Tsipras said, “Come Monday and the Greek government will be at the negotiating table after the referendum with better terms for the Greek people”. Greeks had not voted for “better terms”. They had voted for justice and for sovereignty, as they had done on January 25.
The day after the January election a truly democratic and, yes, radical government would have stopped every euro leaving the country, repudiated the “illegal and odious” debt – as Argentina did successfully — and expedited a plan to leave the crippling Eurozone. But there was no plan. There was only a willingness to be “at the table” seeking “better terms”.
The true nature of Syriza has been seldom examined and explained. To the foreign media it is no more than “leftist” or “far left” or “hardline” – the usual misleading spray. Some of Syriza’s international supporters have reached, at times, levels of cheer leading reminiscent of the rise of Barack Obama. Few have asked: Who are these “radicals”? What do they believe in?
In 2013, Yanis Varoufakis wrote: “Should we welcome this crisis of European capitalism as an opportunity to replace it with a better system? Or should we be so worried about it as to embark upon a campaign for stabilising capitalism? To me, the answer is clear. Europe’s crisis is far less likely to give birth to a better alternative to capitalism …
“I bow to the criticism that I have campaigned on an agenda founded on the assumption that the left was, and remains, squarely defeated …. Yes, I would love to put forward [a] radical agenda. But, no, I am not prepared to commit the [error of the British Labour Party following Thatcher’s victory].
“What good did we achieve in Britain in the early 1980s by promoting an agenda of socialist change that British society scorned while falling headlong into Thatcher’s neoliberal trip? Precisely none. What good will it do today to call for a dismantling of the Eurozone, of the European Union itself …?”
Varoufakis omits all mention of the Social Democratic Party that split the Labour vote and led to Blairism. In suggesting people in Britain “scorned socialist change” – when they were given no real opportunity to bring about that change – he echoes Blair.
The leaders of Syriza are revolutionaries of a kind – but their revolution is the perverse, familiar appropriation of social democratic and parliamentary movements by liberals groomed to comply with neo-liberal drivel and a social engineering whose authentic face is that of Wolfgang Schauble, Germany’s finance minister, an imperial thug. Like the Labour Party in Britain and its equivalents among former social democratic parties such as the Labor Party in Australia, still describing themselves as “liberal” or even “left”, Syriza is the product of an affluent, highly privileged, educated middle class, “schooled in postmodernism”, as Alex Lantier wrote.
For them, class is the unmentionable, let alone an enduring struggle, regardless of the reality of the lives of most human beings. Syriza’s luminaries are well-groomed; they lead not the resistance that ordinary people crave, as the Greek electorate has so bravely demonstrated, but “better terms” of a venal status quo that corrals and punishes the poor. When merged with “identity politics” and its insidious distractions, the consequence is not resistance, but subservience. “Mainstream” political life in Britain exemplifies this.
This is not inevitable, a done deal, if we wake up from the long, postmodern coma and reject the myths and deceptions of those who claim to represent us, and fight.
When Greece resoundingly rejected economic austerity last week, Prime Minister Alexis Tsipras and his government were given a wealth of political capital.
For the second time, including the election of Tsipras’ Syriza party six months ago, the Greek people spoke out democratically – unequivocally and irrefutably – no more austerity and debt slavery.What do the European Union leadership and the Troika of creditors not understand about the word “No”? The Greek people have spoken — twice en masse — that they no longer want to endure imposed poverty in order to bailout the financial oligarchy, both within their own country and in Europe generally. Enough is enough of the prevailing kleptocracy of the creditors under the cynical guise of “financial probity”.
The Greek people have every moral and legal right to repudiate the gargantuan racket of piling up astronomical debt in their name, the proceeds of which go to the financial aristocracy, leaving the people to pick up the bill in the form of generations of enforced immiseration.
This week, Greek premier Alexis Tsipras gave a defiant-sounding speech to the European parliament in Strasbourg. He was greeted with cheers from many parliamentarians, and also jeers from opponents. It was the first occasion for Tsipras to speak publicly in Europe since the historic Greek referendum on July 5. He called for an end to the “austerity laboratory” that his country has been subjected to over the past five years. He hit out at the financial oligarchy in Europe which has plunged all of the EU countries into ruin.
Tsipras also denounced previous corrupt Greek governments, which in cahoots with the European creditors, have saddled the ordinary citizens with some $320 billion debt. He called for social justice and noted that the richest 10 per cent of Greece’s population owns over 50 per cent of the country’s total wealth yet they don’t pay any tax to support society. Tsipras said, with sound reason, that what is known as the “Greek crisis” is actually a “European crisis” requiring a “European solution”.
So far, so good. Then came that sinking feeling. While Tsipras was giving his bravura speech in Strasbourg news emerged that his newly appointed finance minister, Euclid Tsakalotos, had submitted Greek government plans for a new three-year financial bailout from the EU creditors. The new plans include commitments to implement economic reforms on pensions and taxes. That sounds ominously like the Syriza government is preparing to meet the creditors’ demands for more austerity, or what we might call “austerity-lite”.
In the coming days, Athens is to reveal the full details of its “reforms” which will be assessed by the leaders of the EU 28 member states at a summit on Sunday. If the reforms do not go far enough to satisfy demands led by Germany and the Brussels bureaucratic elite, then the latter has allegedly drawn up plans for Greece to be expelled from the euro monetary system — the so-called Grexit.
In other words, it appears that Tsipras and his Syriza government are readying to cave in to ultimatums for more austerity to be imposed on the already devastated Greek population.Such a capitulation runs in the face of Tsipras’ own logic which he eloquently spelled out to the Strasbourg parliament. Austerity is a demonstratively failed policy, he said. It has crippled the Greek economy and has only resulted in ever-more increasing, un-payable debt.
To engage in any further austerity is also reneging on the democratic mandate that the Greek people have bestowed on its government. The people have trenchantly expressed their position — no more austerity and dictate from the EU’s creditors. This position was also supposed to be a “red line” for Tsipras and his government. So how can he contemplate crossing it — and especially after the landslide referendum result last week?
The Syriza government — and not for the first time — appears to be placing its faith in hatching a deal with the banker-dominated EU leadership. It seems willing to repeat the fatal mistakes of past Greek governments by “extending and pretending” a dubious financial bailout for the country in return for “reforms” — which is just a euphemism for more punitive measures on workers’ wages, social security for the unemployed and entitlements for the elderly. We may be sure that the proffered “tax reforms” do not include long-overdue demands on Greece’s wealthy to pay their fair share. Such measures have already been rejected by the EU creditors and the IMF.
Even before the referendum, Syriza was signalling that it was ready to accept, at least in part, the creditors’ dictates. And within hours of the historic vote, Tsipras asked his then finance minister Yanis Varoufakis to resign because Germany and other hardline creditors did not want Varoufakis back at the negotiating table.
That in itself was an extraordinary capitulation to anti-democratic dictate from Berlin and its banker lackeys.
What the Syriza government should be doing is obeying their democratic mandate by placing its faith in the Greek people, not the Brussels bureaucrats and governments who are serving the financial oligarchy.
The Athens government should also rely on the immense solidarity and political strength afforded by the mass of European citizens who support the anti-austerity cause. Syriza could form a formidable anti-austerity, anti-debt bloc with Spain’s Podemos, Germany’s Left Party, Ireland’s Sinn Fein and other leftwing parties across Europe.
Tsipras and his party leadership do not seem to realise that they are the ones who hold the winning cards, not the discredited Brussels elite. By threatening to leave the euro system on the principled stand of repudiating austerity and defaulting on unethical debts, the Tsipras government wields enormous power against the banker oligarchs and their politician-puppets.
Greece has the power to bring to its knees the corrupt anti-democratic cabal and their bankrupt neoliberal capitalism that has hijacked the entire EU bloc. And to then build a more democratic EU from the people, from the bottom up; to build a Europe where democracy, citizens and workers are at last able to exert the proper control over economic and financial resources.Why do you think US President Barack Obama has this week urged Germany’s Angela Merkel to try to keep Greece within the eurozone orthodoxy? Washington is worried that the rotten EU status quo and its NATO alliance could collapse if genuine European democracy were to resurrect from debt slavery, led by Greece.
The haughty, arrogant EU financial tyrants and their political puppets, like Germany’s finance minister Wolfgang Schauble and the unelected arch-bureaucrats Jean-Claude Juncker and Donald Tusk, are prone to lecture Greece about how it has squandered capital down through the years. The feckless, lazy Greeks now have to pay up, so they imply. Yes, Greece did squander capital, it is true, but on the Greek oligarchs who stashed their money in offshore havens and in European banks. The argument that Greek people indulged in reckless spending is an odious myth to justify debt slavery.
However, what appears now to be bitterly ironic is that Alexis Tsipras and his government are about to squander a much more precious capital — the political capital that the Greek people and other ordinary citizens across Europe have invested in them — to stand up for democratic rights and to strike a decisive blow against debt slavery.
About 60 percent of Greeks have voted “No” in Sunday’s referendum on the bailout deal and austerity measures, reported the Interior Ministry after almost 30 percent of the vote had been counted.
About 9.9 million Greeks were eligible to take part in the vote, which was labeled #Greferendum on social media.
The “No” victory has been predicted by several opinion polls, including GPO, Metron Analysis and MRB, whose polls were released after the end of the voting.
Before the results were announced, the parliamentary spokesman for the ruling Syriza party, Nikos Filis, told Greek television that “No’”s prevalence in these polls indicated that Greek government can now make a deal with the Troika of international creditors.
“I think this is guidance for the government… to move forward quickly to seek a deal and normalise the banking system,” he said.
In the meantime, Greek government spokesman Gabriel Sakellaridis told state TV that Athens is planning to resume the talks with the Troika.
“The negotiations which will start must be concluded very soon, even after 48 hours,” Sakellaridis said, “We will undertake every effort to seal it soon.”
Proponents of the “Yes” vote argued that a “No” vote may lead to Greece’s exit from the Eurozone, and potentially the EU.
The talks between Greece and the Troika of international creditors – the EU, the European Central Bank and the International Monetary Fund – have stalled since June, after the Eurogroup declined to prolong a financial aid program for Greece or delay payments on earlier debts.
Greece, which has been in crisis since 2009, was supposed to make an IMF loan payment of €1.6 billion by June 30 but failed to do so. It is required to make another major payment of €3.5 billion to the ECB on July 20.
Decades of exorbitant military spending account for Greece’s present downfall under an Olympian-sized debt. European governments and news media portray the problem of Greece’s financial woes as public spending profligacy.
The truth is that Greece’s debt mountain has been incurred from years of wasteful military splurging. That is the tragic downfall of the country, which European creditor governments and the mainstream news media tellingly ignore.
But in this understanding of Greece’s modern tragedy, there is hope for democratic renewal and redemption. Because that realisation permits a radically different option to restore Greece’s economy in a way that is rational and achievable, without piling up more debt and misery for the population. Instead of more austerity imposed on workers and pensioners, the solution is for Greece to embark on a massive disarmament programme to overturn decades of reckless militarism.
Greece’s outstanding total debt is around $320 billion – or 175 per cent of its national economic output (GDP). Its creditors – the Troika of European Union, European Central Bank and the International Monetary Fund – are insisting that the Athens government must oversee more public cuts.
The reality is that austerity is only driving the Greek economy into further depression and debt.
That inevitably means more and more of the Greek people’s sovereign rights whittled away to the point of becoming a vassal state dictated to by foreign governments and finance capital.
As a foreboding sign of things to come, Greek Prime Minister Alexis Tsipras’ latest offer of raising corporation taxes in place of cutting pensions was slapped down last week by the Troika.
The imperious demand for more austerity has now forced the Greek government to put the choice to the public in the form of a proposed referendum on the EU’s bailout terms, to be held on July 5.
Greece’s debt crisis appears to be heading to an even sharper crisis point. But the Greek origin of that word “krisis” also has a positive connotation of decisive event. The Greek people should reject the never-ending debt addiction that the EU creditors and IMF have hooked the country on. For that way only foreshadows increasing austerity and anti-democratic dictate.
What the Greek people can turn to is a realistic and altogether more democratic and humane option – of demanding their country slash its monstrous military spending.
Even after five years of economic catastrophe, Greece’s annual military budget amounts to $4 billion, according to the Stockholm International Peace Research Institute. That translates to 2.2 per cent of the nation’s GDP – a colossal drain on the economy.
To put Greece’s military spending into perspective, it is double the ratio that most other EU countries currently spend on defence. For example, Germany spends 1.2 per cent of GDP, Italy 1.1 per cent, Netherlands 1.2 per cent and Belgium 1.1 per cent.
If Greece were to cut its outsized military budget by half that would generate $2 billion in one year alone, which would pay off its immediate bill to the IMF and help the country reach a 1 per cent budget surplus that the Troika has set for 2015. In other words, that source of finance would obviate any further need for cutting pensions and workers’ salaries.
Why the Syriza government of Alexis Tsipras, which claims to be a radical socialist coalition, does not pursue this more imaginative and democratic alternative is a curious question. Last week, Tsipras offered to cut the military budget by $200 million – or a mere 5 per cent. But the offer was rebuffed by the IMF because it stated that its rules do not permit interference in a country’s defence policy. To which Tsipras and the Greek electorate should respond with their own rebuff of IMF absurdity – especially evident with the IMF’s throwing billions of dollars to the regime in Kiev which is waging war on the eastern Ukrainian population.
But that’s only a trifling start to addressing the Greek tragedy. The Greek people have legal and moral grounds to repudiate the entire debt mountain as illegitimate or, as economists would say, “odious debt”.
During the decade up to the onset of crisis in 2010, Greece was regularly spending 7 per cent of its GDP on military. Some estimate that during that decade the country spent a total of $150 billion on defence – or half of the current debt pile.
As Greek economist Angelos Philippides told the Guardian back in April 2012: “For a long time Greece spent 7 per cent of its GDP on defence when other European countries spent an average 2.2 per cent. If you were to add up that compound 5 per cent [difference]… there would be no debt at all.”
Moreover, Greece’s past military expenditure was mired in corruption.
In October 2013, ex-defence minster Akis Tsochatzopoulous of the previous PASOK government was jailed for 20 years in a bribery case involving $75 million in kickbacks.
And here is an ironic twist in this Greek tragedy. The biggest European weapons dealers to Greece are German and French companies. In the Tsochatzopoulous scandal, German company Ferrostaal paid a fine of $150 million for its part in using bribes to clinch the sale of four submarines.
It was an open secret that Greece’s military largesse was for years stinking with corruption. Yet the German and French authorities did nothing to derail this gravy train. The Berlin and Paris governments continued to ply Greece with loans because the country was using the money to buy massive amounts of weapons from their manufacturers.
Today, the single biggest institutional creditors to Greece are Germany and France. Those countries stand accused of criminal irresponsibility in racking up Greece’s debt precisely because so much of the money was being spent to prop up the German and French economies through lucrative arms sales.
It is a monumental irony that German leader Angela Merkel is most vehement in lecturing Greece about “living within its means”. Rather than directing corrective action at the source of the problem, it is Greek workers, pensioners, the young and infirm who are being made to pay for the largesse that they actually never saw.
If the Greek people repudiate the entirely artificial debt crisis, it would restore their country’s economy on a sound footing. Of course, the country’s bloated military will not be happy with that. The danger of a military coup is a real threat given the country’s history of fascist dictatorship during the US-backed “regime of the colonels” between 1967-1974. Perhaps this is what the Syriza government is afraid of.
And, to be sure, the Troika of EU leadership, ECB and IMF will be intensely displeased if the Greek people go for the radical alternative of rejecting debt and austerity. However, in the battle shaping up, the Greek people have natural justice on their side. They should and can reject debt slavery and dictate. By doing so, Greece may redeem the meaning of “Demos Kratia” – People Power. And what a beautiful denouement in the Greek tragedy that would be, not only for the people of Greece but right across all the debt-ridden Western countries.
Greece is hailed as the ancient birthplace of democracy. Two millennia on, it could also be the very place for its renaissance.
For five years now Europe has been troubled by the problem of the Greek debt. It all began with a relatively modest sum estimated at 15-20 billion euros, though at the time coping even with this debt seemed beyond the country’s capacity. Instead of simply writing off the debt, the “Troika” consisting of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) offered Greece a program of economic assistance in exchange for carrying out “urgent reforms”.
The results of this program, and of the help it provided, speak for themselves. Greece’s economy contracted by 27 per cent, and the debt rose to 320 billion, despite a partial write-off. From an original 60 per cent of GDP, the debt thus reached 175 per cent. Meanwhile, neither the Troika nor the previous Greek government acknowledged the obvious failure. The Troika not only insisted on continuing and even radicalising its clearly pointless actions, but also proposed treating the economic ills of other eurozone countries (Italy, Spain and Portugal) on the basis of the Greek model.
The actions of the Troika seem far less absurd if we reflect that the billions of euros intended to “save Greece” never reached that ill-fated country but were deposited immediately in German and French banks. Under the pretext of servicing the Greek debt a huge financial pyramid was created, analogous to a Ponzi scheme or to the MMM and GKO pyramids in 1990s Russia, but on a much greater scale. Meanwhile, part of the money that finished up in the banks was sucked directly out of Greece, while a further part came from the pockets of West European taxpayers. For decisions made effectively in Berlin and Brussels, with the approval of Paris, the citizens of other Eurozone countries were forced to pay. The victims included even the inhabitants of Spain and Italy, as well as of countries such as Austria and Finland that had no relation whatever to the events concerned. A sort of all-European pipeline was constructed, and used to siphon off state funds for the benefit of German and French financial capital.
With the coming to power of the left-wing government formed by the SYRIZA party and headed by Alexis Tsipras, hopes arose in Greece that the endless series of large and small economic, social and moral catastrophes which the country had suffered since 2008 would finally come to an end. Even if the situation did not improve, things would at least proceed differently. SYRIZA had been elected with a clear mandate to end the policies of economic austerity, to put a stop to the privatisation and commercialisation of the public sector, and above all, to give Greeks back their self-respect by conducting tough, principled negotiations with the creditors who in recent years had behaved toward the country as though they were an occupation administration. SYRIZA, moreover, was considered in Europe to be pro-Russian; during the election campaign representatives of the party had repeatedly voiced disagreement with EU policy toward Russia, criticising the imposition of sanctions and condemning the new political order imposed in Ukraine following the political overturn of February 2014.
The first agreements concluded by the new Greek government with its creditors showed, however, that in practice everything was turning out quite differently. The representatives of Athens made heated declarations, and then, after securing only minimal amendments, proceeded to sign the next agreement dictated by the creditors. In part, this inconsistency resulted from the contradictions of the mandate obtained by Tsipras and his colleagues. They had promised to put an end to the economic austerity that was killing demand and production. But they also pledged to keep the country within the Eurozone and the EU, stressing that a default on foreign debts had to be avoided. This way of formulating the question handed Greeks over to the mercy of their creditors.
To pay off the debts is simply impossible.
Moreover, a re-launching of the economy is technically inconceivable unless the harsh rules imposed by the ECB are rejected, along with its insistence on a dramatic increase in competitiveness unaided by a lowering of the exchange rate. Since it has been understood from the outset that the ECB will not agree to sharply lower the euro exchange rate solely in order to save Greece, it is clear that in technical terms there is not the slightest chance of a successful exit from the dilemma without Greece quitting the Eurozone and returning to the drachma. The only real question has been whether this exit will be planned, organised and prepared in advance, or whether it will be chaotic and disastrous. The situation is very similar to the one in Argentina in 2001, when after a default the peso had to be decoupled from the dollar if economic growth was to resume.
Nevertheless, even discussing this sole realistic scenario, let alone making preparations to carry it out, has been banned; if such a course were followed, the German and French banks would stand to suffer, along with the reputations of the EU leaders. So long as the Greek government accepts these conditions, it is in the situation of a doctor who undertakes to treat a cancer sufferer without infringing on the “lawful interests” of the tumour and without placing obstacles in the way of its growth. Or, it is like a person who negotiates with vampires on how much of his or her blood they will drink. In each case, the prior interests recognised are those of the vampires.
For the sake of fairness, it should be acknowledged that to a certain degree the contradictions of SYRIZA’s position reflect those of Greek society itself. On the one hand, many Greeks are outraged and want changes, while on the other, people are afraid to risk their middle-class comforts, even though these comforts are diminishing by the day. So long as substantial numbers of the population still have savings in euros, these people are paralysed by fear that their money will be lost or devalued. It is one thing to attend demonstrations demanding that the creditors “respect the country”, and quite another to be ready, right now, to accept particular sacrifices and risks for the sake of one’s own future. It is true that there is no other way out, but both the authorities and society need to think and talk about this openly. Through making statements that try to satisfy everyone, the Tsipras government has instead driven itself into a trap.
The problem is not so much that drastic and humiliating conditions have repeatedly been imposed on Greece by its creditors, as that these agreements are not solving the dilemma but exacerbating it. The debt crisis is worsening, and the sum owed is increasing – both in absolute terms and in relation to the size of the economy as the latter shrinks under the impact of the crisis. Consequently, any new agreement simply assumes that a new crisis will arise after a few months. Each time, this new crisis is more destructive.
While lacking the resolve to answer the EU leaders with an emphatic “no”, Alexis Tsipras and his finance minister, the economist Giannis Varoufakis (an import from the University of Texas), cannot fail to understand that agreeing with the Troika will also turn out disastrously for them. Before their eyes, just such a capitulation only two years ago transformed the powerful social democratic party PASOK from the country’s leading political force into an outsider.
Tsipras has sought to manoeuvre, doing his best to please everyone. He has reassured the creditors, indulged the petty-bourgeois illusions of voters, and delivered radical speeches to meetings of left activists. While promising everyone the maximum possible, his government in practice has tried to sabotage some of the agreements signed with the Troika, particularly in cases where the signatures were affixed by earlier administrations. But the ministers have lacked the courage even to suggest that these agreements might be abrogated, or that the government might openly refuse to carry out their stipulations. A notable example of the Greek government’s diplomatic approach is the position it has taken on the question of sanctions against Russia. Under the rules of the EU, Greece could simply block these sanctions in the summer of 2015. This demand was raised by members of the SYRIZA party itself, when they voted en bloc in the European Parliament against anti-Russian resolutions. But in the heat of the next round of negotiations between the Troika and the Greeks, at a time when Tsipras himself was in St Petersburg explaining to Russian colleagues the prospects for the development of special relations with Athens, his representatives in the EU gave their backing to the sanctions. Addressing the public, Greek diplomats then stated that they had fought like lions on behalf of Russian interests, and that it was only because of their persistence and principled character that the sanctions had been extended for a mere six months, instead of twelve months as the Germans had demanded.
Tsipras’s policy of compromise can be explained in part by a desire to win time in expectation of the elections in Spain, where the left coalition headed by the Podemos party had a serious chance of success. Spain is a far more influential country than Greece, with a far stronger economy, but is suffering from a very similar if less severe crisis. If Podemos were to come to power, Athens would be able to escape from its international isolation. In addition, the Left Bloc in Portugal has a definite chance of success. In other words, an opportunity has appeared to establish an international coalition of Mediterranean countries opposing Berlin and Brussels. But among the public in Spain and Portugal, Tsipras’s own actions and his evident weakness have raised questions about the advisability of placing trust in the left alternative, thus weakening the hopes of the left in those countries.
Within the European left milieu, sympathy nevertheless remains for SYRIZA as a party that finds itself in extremely difficult circumstances. Against the background of many years of setbacks for the European left, Tsipras’s initial successes inspired hopes which people are reluctant to abandon. The SYRIZA leader’s principle, of first making radical speeches and then of giving way to the superior forces of his opponents, seemed to be justified. Not only in other parts of Europe but in Greece as well, the popularity of Tsipras’s government increased. People not only refrained from condemning him, but pitied him as the hostage of vampires against which he was time and again proving powerless.
To fool pseudo-lefts and provincial petty bourgeois is not particularly difficult, but financial vampires do not fall for such tricks. The sabotage aroused righteous indignation in the creditors, who steadily increased the pressure. The agreements which the Greeks signed with the creditors after SYRIZA came to office were no better than those endorsed by the previous government, and had the same results.
In June, when the next round of payments fell due, there turned out to be no money in the budget.
A further restructuring of the debt was essential. In exchange, the Troika demanded the acceptance of a new “reform package”, by comparison with which all the preceding austerity measures seemed mere warm-up exercises. At one and the same time wages and pensions would have to be cut, taxes would need to be raised, and all concessions would have to be stripped from tourism, which amid the destruction of industry and the decline of agriculture remained the only relatively stable sector of the economy. The country would sink inevitably into a new spiral of recession. For SYRIZA, this would mean not only abandoning all its election promises, but also submitting to public humiliation, with the obvious prospect of defeat at the next elections. This, indeed, was what the creditors were seeking.
On June 22 Greece effectively capitulated. The government agreed to extract more revenue from the Value Added Tax, raising it to 0.93 per cent of GDP, and to increase taxes on shipping companies (in other words, to make trips between Greek islands and the mainland more expensive). A cut to pensions was also promised, though the Athens authorities asked to be allowed to introduce the changes involved over time rather than immediately.
The only point on which the Greek negotiators demurred, in order to save face, was a demand that the Value Added Tax be raised to 1 per cent of GDP. In other words, the extent of their resistance was a whole 0.07 per cent. The Greek side meanwhile agreed that company tax should be levied at the rate of 28 per cent, instead of 29 per cent as it had initially suggested to the Troika. The Greeks also asked to be allowed to keep defence spending at its former level; this matched the general requirements of the NATO bloc, of which Greece is part.
The game, it might have seemed, was over. The world financial press celebrated, and prices rose on the share markets. In Athens, there was even a demonstration by members of right-wing parties supporting the creditors. Well-dressed citizens gathered in the central Syntagma Square, calling for pensions to be reduced. True, there were not many of these demonstrators, only about 1500, but the television managed to make the picture so impressive that even the well-known American commentator Paul Craig Roberts, a sharp critic of the policy of the financial institutions, expressed puzzlement at the way Greeks had apparently been brainwashed to the point of agreeing to their own country’s humiliation.
Then the unexpected happened. German representatives declared their dissatisfaction at the speed with which the European Commission welcomed the new offers from Athens. Under pressure from Berlin, Tsipras’s offers were rejected. The Greeks had surrendered, but as it turned out, the Germans were not taking prisoners.
The Eurocrats not only refused to agree to the symbolic concessions needed by Tsipras and Varoufakis if they were to save face, but like gangsters with a client who is behind in paying protection money, began making new demands. With its back to the wall, the Greek government suddenly displayed a courage born of despair. Tsipras delivered a fiery speech to the people, and called a referendum. Greeks would decide for themselves whether to agree to the demands of the creditors. The last PASOK prime minister, George Papandreou, had planned to do something generally similar, but the creditors applied pressure to him, and he renounced his attempt. The upshot was that Papandreou lost his reputation, his job as premier, and even his position at the head of his own party. Knowing the fate of his predecessor, Tsipras showed more consistency. A further inducement for him was the fact that even before the eurocrats had rejected the “compromise” he had offered, a revolt had broken out in the SYRIZA ranks, and it was clear that if the agreement with the Troika was to get through parliament, it would only be with the votes of the rightists.
This time, the deputies of the conservative New Democracy party tried to block the vote on the referendum. But eventually they returned to the chamber, and the resolution was adopted. On July 5 Greeks are to decide on whether or not to agree to the conditions of the financial vampires.
It is significant that the Troika characterised the use by the Greeks of this democratic procedure as a rejection of the agreement. Troika representatives then called off the talks and declared that “aid” to Greece would cease from June 30. This means that regardless of the outcome of the referendum, a technical default from July 1 is inevitable, and this in turn will lead almost automatically to Greece’s exit from the eurozone and return to the drachma.
The chance that the supporters of austerity would win the referendum, illusory in any case, has now vanished completely.
What was bound to occur has now actually happened, just as in Argentina in 2001, where all political forces tried desperately to avoid a default and exit from the dollar zone (the Argentinian peso was tied to the US dollar), but where this occurred anyway. In both Argentina and Russia, financial collapse was followed by a few dramatic and chaotic months, after which an economic recovery began. The situation in Greece is somewhat more complex, but in Greece as well the shift to an inevitably devalued drachma opens a range of possibilities. Cheap resorts will attract the tourists who are now in critically short supply (Russian tourism alone in Greece has shrunk this year by 70 per cent). New prospects will open up for tourism and shipbuilding. Relations with Russia could also be placed on a more solid footing.
The situation has turned out to the benefit of Greece, but despite the actions of the country’s present leaders rather than because of them. It should, though, be recognised that Tsipras, even if he dragged out his decision until the very last moment, has nevertheless shown that he has a better claim to the role of national leader than his predecessors. The Greeks were forced to bend, but they were not broken.
What, though, can have motivated the Berlin leaders, when they refused to accept the Greek capitulation? It is possible, of course, that the German leaders simply made a mistake. The situation ran out of control because each side failed to anticipate the reaction of the other. The Greeks overestimated the rationalism of the Germans, and the Germans, the opportunism of the Greeks. The more acute a crisis becomes, the more mistakes are made; this is the general logic of the historical process. It is not excluded that the leaders in Berlin misjudged the likely results of the talks between Russia and Greece, and hoped that the Russians would supply Tsipras with money that the Greeks could use to pay off the creditors. But Tsipras left St Petersburg without having received any money, though with an agreement to build a gas pipeline that for technical reasons will be impossible to implement before 2018 (it should be noted that the Russian gas corporation Gazprom then and there announced that gas transit through Ukraine would continue after 2019, placing the profitability of the highly expensive Greco-Turkish pipeline in question).
Nor can the possibility be excluded that Berlin consciously provoked the crisis.
German analysts may have calculated that the debt bubble would burst in any case, and have decided to deflate it themselves, without waiting for events to develop spontaneously. Even if agreement had been reached on the conditions set down by the Troika, new crises would not only be “predictable with mathematical certainty” (as Varoufakis stated), but much more importantly, the proportion of the funds pumped by the German banks out of Greece would diminish with every new cycle, while the share coming from the German taxpayer would increase. In other words, political risk would be added to the risk that the debt pyramid would crumble. Members of the public in northern Europe are beginning to grasp that under the pretext of “saving Greece”, they themselves are being robbed by “their own” side. Even if northern Europeans fail to understand this, they will still mount resistance, out of reluctance to part with their money. It is also worth noting the publication of the sadly notorious Charlie Hebdo issue that came out with the headline “Drown the Greek to save Europe”.
So – was it evil intent, or a collective miscalculation?
These two explanations, though logically counterposed, may in reality serve to reinforce one another. There was a degree of ill-intent, but there were also miscalculations on both sides. We may recall that it was in precisely this fashion that war broke out in 1914. All the various parties had prepared for a war, had planned it and wanted it, but events nevertheless unfolded in a fashion completely different from what they had counted on. Control over the situation had been lost.
It appears that the same happened this time. Even if the Troika intended something along the lines of “drowning the Greek”, things will now proceed in a way distinctly different from what they anticipated. The referendum called by Tsipras is sharply altering the psychological landscape not just in Athens, but throughout Europe. Willingly or otherwise, SYRIZA has raised the banner of resistance. For the other crisis-wracked countries of the eurozone, this will provide a signal that the financial vampires of the EU are not all-powerful. The vampires themselves will be forced to undertake even harsher measures, in an effort to halt the growing collapse of the neoliberal regime installed in the EU by the Maastricht and Lisbon talks. As history teaches us, such measures ultimately serve only to exacerbate a crisis, provoking more and more active resistance. This is now occurring in the countries of the European “centre” – Italy, France, and even Austria and Germany. In the present situation, however, no other road remains open to the ruling groups in Berlin and Brussels. And before the light appears at the end of the tunnel, we are bound to plunge still further into the depths of the crisis.
All of our countries will feel the direct effects, including Russia.
Translation: Renfrey Clarke.
Boris Kagarlitsky is the director of the Institute of Globalization Studies.
Back in January upon coming into office, Syriza probably could not have won a referendum on whether to pay or not to pay. It didn’t have a full parliamentary majority, and had to rely on a nationalist party for Tsipras to become prime minister. (That party balked at cutting back Greek military spending, which was 3% of GDP, and which the troika had helpfully urged to be cut back in order to balance the government’s budget.)
Seeing how unyielding the opposition was, Syriza’s stance was: “We would like to pay. But there’s no money.”
This kept throwing the ball back into the troika’s court. The Institutions were so unyielding that Syriza’s approval rating in the polls rose by 13% by June. Greek voters became increasingly incensed at the Troika’s demand for further pension cuts and privatizations.
Tsipras and Varoufakis were willing to pay the IMF with the IMF’s own funds, in what V. called “extend and pretend.” But their only interest in keeping current on debt was to obtain additional funding that could be used to pay domestic pensions and other basic government budgetary expenditures.
The basic tactic in such tensions between creditors and debtors is clear: once debt repayments exceed new loans, stop paying.
So when The Institutions made it clear that no more credit would be forthcoming without Syriza adopting the old Pasok/New Democracy capitulation to Troika demands, Tsipras and Varoufakis decided it was time to call a referendum eight days hence, on Sunday, July 5.
Late Friday night and into the early Saturday morning hours, Greeks ran to the ATM machines to convert their checking and savings deposits into euro notes, expecting that the end game would involve a likely 30% depreciation of the drachma – and that indeed, the ECB would stop lending to support Greek banks (the only role the ECB wanted to play).
Syriza had no love for the banks. They were the vehicles through which the oligarchs controlled the Greek economy, after all. For a month, they had been discussing how to separate the banks into “good bank” and “bad bank,” either nationalizing them (wiping out stockholders) or creating a Public Option alternative.
Most important, once out of the eurozone, Greece could create its own Treasury to monetize its spending. The Institutions called this “scrip,” but the Greeks could establish it as their national currency. They would escape from euro-austerity – except, of course, to the extent that the ECB waged economic war on Greece by imposing its own capital controls.
By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had – by converting these bank deposits into euro notes, automobiles and “hard assets” (even boats).
Businesses borrowed from local banks where they could, and moved their money into eurozone banks or even better, into dollar and sterling assets. Their intention is to pay back the banks in depreciated drachma, pocketing a 30% capital gain.
What commentators miss is that Syriza (at least its left) wants to be transformative. It wants to free Greece from the post-military oligarchy that evades taxes and monopolizes the economy. And it wants to transform Europe, away from ECB austerity to create a real central bank. In the process, it demands a clean slate of past bad debts. It wants to reject the IMF’s austerity philosophy and refusal to take responsibility for its bad 2010-12 bailout.
This larger, transformative picture is at the center of Syriza-left plans.
I’m in Germany now (on my way to Brussels), and have heard from Germans that the Greeks are lazy and don’t pay taxes. There is little recognition that what they call “the Greeks” are really the oligarchs. They have gained control of the old coalition Pasok/New Democracy parties, avoided paying taxes, avoided being prosecuted (New Democracy refused to act on the “Lagarde List” of tax evaders with nearly 50 billion euros in Swiss bank accounts), orchestrated insider dealings to privatize infrastructure at corrupt prices, and used their banks as vehicles for capital flight and insider lending.
This has turned the banks into vehicles for the oligarchy. They are not public institutions serving the economy, but have starved Greek business for credit.
So one casualty apart from the credibility of the eurozone, the ECB and the IMF will be these banks. Syriza is positioning itself to provide a public option – public banks that will promote the economy, and a national Treasury that will spend government money INTO the economy, not drain it to pay the Troika for having bailed out French and other banks back in 2010-1.
The European popular press is as bad as the U.S. press in describing matters. It warns of “hyperinflation” if a central bank monetizes as much as one euro of government spending in the way that the U.S. Fed does, or the bank of England or any other real central bank. The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service. That was what caused Germany’s hyperinflation in the 1920s, not domestic German spending. It is what caused the Argentinean and other Latin American hyperinflations in the 1980s, and Chile’s hyperinflation earlier.
But once Greece frees itself from the odious debts forced upon it at financial gunpoint in 2010-12, its balance of payments will be roughly in balance (subject to some depreciation of the drachma; 30% is a number I heard bandied about in Athens last week).
To mimic Margaret Thatcher, “There is No Alternative” to withdrawing from the eurozone. The terms dictated for remaining in it was to sell off all of what remained in Greece’s public sector to European and U.S. buyers, at insider prices – but not to Russian buyers, even for the gas pipeline that was to have been sold.
Evidently the eurozone financial strategists thought that Tsipras and Varoufakis would simply surrender, and be promptly voted out of power, thereby crushing their socialist policy agenda. They miscalculated – and are now hoping to create as much anarchy as possible to punish the Greek people. The punishment is for not continuing to support their client oligarchy, which has moved most of its assets out of reach of the government.
But instead of Syriza losing credibility, it is the ECB – which refuses to create money to finance economic recovery, but only to pay the oligarchs’ banks so that they can continue to control the government. This control is now being weakened precisely because their banks are being weakened.
Greece’s Parliament last week released its Debt Truth Commission report explaining why Greece’s debts to the IMF and ECB are odious, and were taken on without a popular referendum approving these loans. Indeed, Mrs. Merkel and Mr. Sarkozy obeyed Mr. Obama and Geithner when the latter insisted at a G8 meeting that the ECB ignore the IMF economists’ analysis that Greece could not pay its debts, and bail out the banks. Geithner and Obama explained that U.S. banks had placed big financial bets that Greece would pay its private bondholders, so the ECB and IMF had to lend the government the funds to pay – but had to overthrow the country’s Prime Minister Papandreou who had urged a referendum on whether Greek people really wanted to commit economic and political suicide.
Financial technocrats were put in place to serve the domestic oligarchy and foreign bondholders. Greece was under financial attack just as deadly as a military attack. Finance is war. That is this week’s lesson.
And for the first time, debtor countries are realizing that they are in a state of war.
This is why markets are crashing on Monday, June 29.
* * *
Eurozone financial strategists made it clear that they wanted to make an example of Syriza as a warning to Spain’s Podemos party, and anti-euro parties in Italy and France. The message was supposed to have been, “Avoid our austerity and we will cause chaos. Look at Greece.”
But the rest of Europe is interpreting the message in just the opposite way: “Remain in the eurozone and we will only create money to strengthen the financial oligarchy, the 1%. We will insist on budget surpluses (or at least, no deficits) so as to starve the economy of money and credit, forcing it to rely on commercial banks at interest.”
Greece has indeed become an example. But it is an example of the horror that the eurozone’s monetarists seek to impose on one economy after another, using debt as a lever to force privatization sell offs at distress prices.
In short, finance has shown itself to be the new mode of warfare. Resisting debt leverage and financial conquest is as legal as is resisting military invasion.
Michael Hudson’s book summarizing his economic theories, “The Bubble and Beyond,” is now available in a new edition with two bonus chapters on Amazon. His latest book is Finance Capitalism and Its Discontents. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. He can be reached via his website, email@example.com