By Michael Faulkner – July 10, 2011
Albert Einstein is supposed to have defined insanity as
“doing the same thing over and over again and expecting different results.” The
recurrent cases of boom and bust in the global financial markets since the
1970s, culminating in the financial meltdown of 2008, may be seen as evidence
in support of this maxim. Now, the burgeoning Greek debt crisis and its impact
on the eurozone, looks likely to provide yet another example of the collective
repetitive insanity syndrome. The policy-makers of the EU, the ECB, the IMF and
the private financial institutions that have underwritten Greek debt over the
past decade, are about to administer yet again a more extreme dose of the same
toxic medicine that has so signally failed to lift the country out of
recession. Such measures have failed in Spain, in Portugal and in Ireland. They
are set to fail even more dramatically in Greece.
So inured have so many become to the superficial and partial
treatment of the Greek crisis in the British media, that in so far as it is
considered at all, the likely response is one of relief that the burden of a
bailout will not fall upon the British taxpayer. Prime Minister Cameron was at
pains to point this out at the recent EU summit in Brussels. Never mentioned is
the fact that the real beneficiaries of the new 120bn euro bailout will be
those banks and financial institutions around the world who have lent to
Greece. They are refusing to take a “hair cut” – to roll over their debts
and accept losses. The bailout is intended first and foremost to ensure that
these creditors will be rescued from the consequences of their irresponsible
lending, in just the same way as the banks behind the sub-prime mortgage crisis
which led to the financial crash were rescued from collapse in 2008. And just
as the working people of Britain, Ireland, Spain and Portugal are paying for the
financial profligacy of the banks through the imposition of harsh austerity
measures in the name of “deficit reduction”, so the Greek people are now being
reduced to penury in order to prop up the international financial system and
guarantee the survival of the Euro zone.
All this is reminiscent of the outcome of the banks’ lending
spree to Latin American governments in the late 1970s. In a prescient review of
Jeff Madrick’s “Age of Greed: the Triumph of Finance and the Decline of
America, 1970 to the Present” (New York Review of Books. June 2011), Paul
Krugman and Robin Wells write:
“When the loans to Latin American governments went bad, Citi
and other banks were rescued via a program that was billed as aid to troubled
debtor nations but was in fact largely
aimed at helping US and European banks. In that sense the program for Latin
America in the 1980s bore a strong family resemblance to what is happening to
Europe’s peripheral economies now. Large official loans were provided to debtor
nations, not to help them economically, but to help them to repay their private
sector creditors. In effect, it looked like a country bailout, but it was
really an indirect bank bailout. And the banks did indeed weather the storm.
But the loans came with a price, namely harsh austerity programs imposed on
debtor nations.”
This describes the Greek/Euro situation exactly. There is an
increasing sense that the European governments attempting to come to terms with
the implications of the Greek debt crisis are whistling in the dark. The
traumatic experience of the 2008 financial meltdown is still a present reality,
the consequences of which, far from having receded, are only now being felt to
the full. But in Britain the media are complicit in encouraging a mood of
complacent smugness, suggesting that Greece is a far-away country about which
we know little and need care less. It’s a “eurozone” problem and as Britain,
thankfully, is not in the eurozone, it will not affect us. But this is
nonsense. The reality is that Greece will be unable to meet its debt
obligations and sooner or later will default. Most serious commentators talk,
not about “if” Greece defaults, but “when”. The new loan, to enable the
government to pay its creditors, comes with tight strings attached, in the form
of austerity measures unprecedented in their severity - twice as large as the
draconian ones already in place. These include sacking 20% of public sector
workers, massive tax rises and a privatization programme more extensive than
anything ever attempted. What happens when Greece defaults? This is the
nightmare prospect haunting the corridors of power in Europe – and almost
certainly in the US also. Osborne’s and Cameron’s feigned insouciance cloaks
what must (or should) be growing concern. The governor of the Bank of England,
Mervyn King, was hardly reassuring when, asked if a Greek default might lead to
a meltdown like the one caused by the collapse of Lehman Brothers, replied: “I
am not sure that the sovereign crisis now and what happened in the case of
Lehman Brothers have much in common, other than in the fact that it is a mess.”
Note – he is not sure!
British banks hold £3bn of Greek bonds, a relatively small
amount. This has led to the claim that the UK will have low exposure to any
default, and that as Britain will not contribute to the eurozone bailout,
taxpayers will be spared. But this is deceptive. It is not the direct
involvement of the banks in Greek debt that is the problem, but the indirect
involvement. As Keynesian economist Will Hutton points out in a recent Observer
column ((19.06.11), the British banking system has outstanding loans of £6.5
trillion – more than four times Britain’s GDP. Against this the banks
have only £300bn of equity capital – funds intended to support loans. The
insurance policy for such loans exists in the form of so-called credit default
swaps (CDS) and they are priced according to how the market assesses the risk
of banks having difficulty servicing their debts. According to Hutton, three of
the four riskiest banks, calculated by the pricing of CDS are Lloyds, RBS and
Santander. Should Greece default on its debts and trigger a chain reaction
engulfing Ireland, Portugal and Spain, followed by the collapse of the euro, he
concludes that “the consequent losses could eliminate the capital underwriting
the entire banking edifice.” In such a scenario, which is far from improbable,
the CDS would be worthless bits of paper.
Most journalistic commentary on the Greek/Euro crisis is
content to marginalize the main players – the working populations of
Greece and the rest of Europe. It is as if they were at best bit-players in a
drama the outcome of which would be settled in the corridors of political and
financial power. But for those with eyes to see - those whose sensitivities
have not been blunted by the luxuries and comforts of class privilege, those
who have not been shielded from reality by wealth and power - it has become
increasingly obvious that this is a crisis of the whole system of
finance-monopoly capitalism. The outcome, sooner or later, will be decided by
the masses of ordinary people throughout Europe and the world who are no longer
prepared to tolerate a system that is literally ruining their lives.
It is to be hoped that the thousands who gather daily in Syntagma
Square in Athens will grow in numbers, strength and determination until they
constitute an unstoppable tide. They have adopted from their Spanish comrades
the title “Indignados” - the angry ones – and they are determined to
continue their struggle until they have thrown off this intolerable burden of
impoverishment imposed upon them at the behest of a political and financial
system whose culpable elites have escaped scot-free. We can be sure that those
at the top of Greek society who operated a tax-evasion system to suit
themselves, will feel none of the pain now being inflicted on impoverished
public sector workers. The old interrogative maxim “Which Side are You On?” was
never more pertinent than now. No specious form of words will do to suggest
that the unbearable impoverishment of the people must somehow be endured for
the sake of economic recovery. No resigned appeal for reasonableness should be
tolerated on the grounds that unbearable impoverishment must be accepted for
fear of something worse. We can be sure that those who argue thus, wherever
they are, will not themselves have to bear the burden they would have others
accept without protest.
The struggle for democratic freedom is indivisible. For all
the differences in circumstances, those demonstrating and fighting for their
freedom in the Arab world are part of the same historic movement as those protesting in Syntagma Square. And in Britain the coming wave of
strikes and demonstrations organized by the trades unions against the unprecedented
spending cuts here are also part of the international movement against a system
that can no longer maintain the standard of living and public services for
which working people have struggled and sacrificed over decades and centuries.
And, as is to be expected, those in power who speak of democracy, when
confronted with the organized power of the people in workplaces or on the street,
will not hesitate to use the law to try to curtail the people’s right to
exercise their democratic right to strike and protest. Be prepared.