A CURE FOR GREECE?

 GREECE: DEFAULT, DEMOCRACY, EXIT FROM THE EURO

The only solution for GREECE remains a debtor-led default and exit from the euro-zone under the leadership of a democratic elected political movement.

When EUROPE’S finance ministers agreed last month to the second GREEK bailout of 130 billion EUROS, they knew very well what to expect. They prolonged the country’s creditor-led default by re-capitalising the banks, while pushing for PSI (private sector involvement) in GREECE’S debt restructuring. 

GREECE’S PROFOUND FINANCIAL AND POLITICAL DEPENDENCY ON BERLIN AND THE ECB

The deal confirmed GREECE’S profound financial and political dependency on BERLIN and the ECB, which ensures that even if the current discredited cabinet, or a similar successor, achieves a primary budget surplus, it may not be able to declare bankruptcy because the new bonds will be subject to English jurisdiction. 

HOW THE ECB AND BONDHOLDERS SOCIALIZED THEIR DEBT 

The deal with the PSI was only procured by the 130 billion EUROS promised by the official sector – basically the so-called ‘troika’: the EU, the ECB and the IMF. Some 30 billion EUROS went directly into the pockets of the bondholders as a ‘sweetener’ to convert their old paper into new bonds, swapping them with new GREEK futures and paper, while generating some further action from CDS (credit default swaps – insurance taken out by the bondholders for protection against default). The rest of the money, linked to mathematical estimates and prognoses of how much debt the GREEK economy can sustain by 2020 without collapsing, went directly into re-capitalising banks. Precisely through this re-capitalisation, the famous ‘haircut’ the PSI took is transferred onto the official lenders/sector. In this way, the debt held by the PSI has been socialised almost in its entirety. It will be the GREEK and the EUROPEAN taxpayer paying for it. 

As a result of this boost to the banks, the above estimates and prognoses bring the debt/GDP ratio of GREECE to 120% by 2020. Note that this may still be unsustainable. Note also, that there has been no suggestion that a single penny in all this paper will go into investment, boosting real economic growth. In other words, all these efforts are pointless exercises designed to benefit the bond-dealers. 

TOTAL LOSS OF SOVEREIGNTY

Have growth prospects for GREECE improved? At present GREECE’S GDP is undergoing a contraction of more than 6% and, due to its deteriorating competitiveness, this contraction is likely to continue. Youth unemployment has surpassed 50% and overall official unemployment is now well over 20%. The country, moreover, borrows at 4.5%-6%, something that renders rather surreal the aforementioned estimate of a 120% debt/GDP ratio by 2020. The disintegration of the productive base of the country over the last two decades due to the competition it faced from the countries of the EUROPEAN core and, above all, GERMANY, make any futurologist betting on a substantial GREEK recovery within the euro-zone sound ridiculous.

Some argue that the austerity measures that have led one-third of GREECE’S society into pauperization may yet bring forth some fruits for the political class currently in power. By the end of the next budgetary year, the discredited party system of the post-1974 era may be in a position to enjoy a primary surplus, thus increasing its degree of independence vis-à-vis the ‘troika’. At that point, the argument goes, GREECE could declare a partial default on its debt obligations, refusing to pay part of its debt. 

This might have been a valid argument if the current GREEK negotiators had either wanted or known how to make capital out of their problem. But they did not. 

EUROPEAN ‘COMMISSION OF EXPERTS’ WILL BE PERMANENTLY SETTLED IN ATHENS OVERSEEING GREEK FINANCES AND BUDGETARY DISCIPLINE

The degree of economic and, even more so, political dependency of the GREEK vassal state on external imperial agencies and structures runs so deep that the current political oligarchy negotiating the second bailout failed to achieve even this prospect of budgetary independence. A EUROPEAN ‘commission of experts’ will be permanently settled in ATHENS overseeing GREEK finances and budgetary discipline. More to the point, the law governing the new bonds issued will not be subject to GREEK law but to ENGLISH law. This means, for instance, that the GREEK parliament can neither review the legal terms of the deal nor sue in an ENGLISH court, as this is both complicated and expensive. More to the point, and this is the crux of the matter, at least in theory it has been made impossible for GREECE, under some future hypothetical radical democratic government, to leave the euro-zone, refusing to pay its debt obligations, or even re-denominating its debt into new drachma. No legislation could be passed by them, because this deal makes the role of the GREEK parliament, that is, the role of formal liberal democracy in one country, redundant. 

MORE THAN 3.5 MILLION GREEK PEOPLE NOW LIVE AT RISK OF POVERTY OR SOCIAL EXCLUSION

Those discredited parties and leaders currently in power in GREECE herald the events of the last month or so as a triumph. Nothing can be more misleading. Once the deal with the PSI was close to completion on Friday evening, 9 March 2012, the euro slipped 1.3% against the dollar, whereas BRITISH sterling gained 0.4% against the euro. This is an indicator ‘from above’, so to speak. 

The indicators ‘from below’ are, nevertheless, those that count most. More than 3.5 million GREEK people now live at risk of poverty or social exclusion (data from Eurostat). There are hundreds of soup kitchens operating across the country; barter is widespread; and street clinics are visible in ATHENS and other urban centres, as hospitals cannot cope with emergencies. Mass lay-offs and wage and pension cuts continue and will continue with no end in sight as long as growth is elusive. If you visit the country you feel that ‘nothing is moving’. Suicide rates have increased dramatically. 

There is a sharp devaluation of assets (property, land, etc.), yet price inflation remains as high as 3%. GREECE is still an expensive country for the average tourist. 

Having said this, the truth of the matter is quite the opposite of what has been envisaged by the bankers and their political representatives in GREECE and EUROPE: by 2020 the private bondholder and the banks will be richer, whereas the GREEK and, for that matter, the average EUROPEAN taxpayer will be poorer.