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.