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Greece: Same Tragedy, Different Scripts

Cafés are full in Athens, and droves of tourists still visit the
Parthenon and go island-hopping in the fabled Aegean. But beneath the
summery surface, there is confusion, anger, and despair as this country
plunges into its worst economic crisis in decades.

The global media has presented Greece, tiny Greece, as the epicenter
of the second stage of the global financial crisis, much as it portrayed
Wall Street as ground zero of the first stage.

Yet there is an interesting difference in the narratives surrounding
these two episodes.

Narratives in Conflict

The unregulated activities of financial institutions, which created
ever more complex instruments to magically multiply money, created the
Wall Street crash that morphed into the global financial crisis.

With Greece, however, the narrative goes this way: This country piled
up an unsustainable debt load to build a welfare state it could not
afford, and is now the spendthrift that must tighten its belt. Brussels,
Berlin, and the banks are the dour Puritans now exacting penance from
the Mediterranean hedonists for living beyond their means and committing
the sin of pride by hosting the costly 2004 Olympics.

This penance comes in the form of a European Union-International
Monetary Fund program that will increase the country's value-added tax
to 23 percent, raise the retirement age to 65 for both men and women,
make deep cuts in pensions and public sector wages, and eliminate
practices promoting job security. The ostensible aim of the exercise is
to radically slim down the welfare state and get the spoiled Greeks to
live within their means.

Although the welfare-state narrative contains some nuggets of truth,
it is fundamentally flawed. The Greek crisis essentially stems from the
same frenzied drive of finance capital to draw profits from the massive
indiscriminate extension of credit that led to the implosion of Wall
Street. The Greek crisis falls into the pattern traced by Carmen
Reinhart and Kenneth Rogoff in their book This Time is
Different: Eight Centuries of Financial Folly
: Periods of
frenzied speculative lending are inexorably followed by government or
sovereign debt defaults, or near defaults. Like the Third World debt
crisis of the early 1980s and the Asian financial crisis of the late
1990s, the so-called sovereign debt problem of countries like Greece,
Europe, Spain, and Portugal is principally a supply-driven crisis, not a
demand-driven one.

In their drive to raise more and more profits from lending, Europe's
banks poured an estimated $2.5 trillion into what are now the most
troubled European economies: Ireland, Greece, Belgium, Portugal, and
Spain. German and French banks hold 70 percent of Greece's $400 billion
debt. German banks were great buyers of toxic subprime assets from U.S.
financial institutions, and they applied the same lack of discrimination
to buying Greek government bonds. For their part French banks, according
to the Bank of International Settlements
, increased their lending
to Greece by 23 percent, to Spain by 11 percent, and to Portugal by 26

The frenzied Greek credit scene featured not only European financial
actors. Wall Street powerhouse Goldman Sachs showed Greek financial
authorities how financial instruments known as derivatives could be used
to make large chunks of Greek debt "disappear," thus making the
national accounts look good to bankers eager to lend more. Then the very
same agency turned around and, engaging in derivatives trading known as
"credit default swaps," bet on the possibility that Greece would
default,  raising the country's cost of borrowing from the banks but
making a tidy profit for itself.

If ever there was a crisis created by global finance, Greece is
suffering from it right now.

Hijacking the Narrative

There are two key reasons why the Greek narrative has become a
time-worn cautionary tale of people living beyond their means, rather
than a case of financial irresponsibility on the part of bankers and

First of all, financial institutions successfully hijacked the
narrative of crisis to serve their own ends. The big banks are now truly
worried about the awful state of their balance sheets, impaired as they
are by the toxic subprime assets they took on and realizing that they
severely overextended their lending operations. The principal way they
seek to rebuild their balance sheets is to generate fresh capital by
using their debtors as pawns. As the centerpiece of this strategy, the
banks seek to persuade the public authorities to bail them out once
more, as the authorities did in the first stage of the crisis in the
form of rescue funds and a low prime lending rate.

The banks were confident that the dominant Eurozone governments would
never allow Greece and the other highly indebted European countries to
default because it would lead to the collapse of the euro. By having the
markets bet against Greece and raising its cost of borrowing, the banks
knew that the Eurozone governments would come out  with a bailout
package, most of which would go toward servicing the Greek debt to them.
Promoted as rescuing Greece, the massive 110-billion-euro package, put
together by the dominant Eurozone governments and the IMF, will largely
go toward rescuing the banks from their irresponsible, unregulated
lending frenzy.

The banks and international financial institutions played this same
old confidence game on developing country debtors during the Third World
debt crisis of the 1980s, and on Thailand and Indonesia during the
Asian financial crisis of the 1990s. The same austerity measures - then
known as structural adjustment - followed lending binges from northern
banks and speculators. And the scenario played out the same way: Pin the
blame on the victims by characterizing them as living beyond their
means, get public agencies to rescue you with money upfront, and stick
the people with the terrible task of paying off the loan by committing a
massive chunk of their present and future income streams as payments to
the lending agencies.

No doubt the authorities are preparing similarly massive
multibillion-euro rescue packages for the banks that overextended
themselves in Spain, Portugal, and Ireland.

Shifting the Blame

The second reason for promoting the "living beyond one's means"
narrative in the case of Greece and the other severely indebted
countries is to deflect the pressures for tighter financial regulation,
which have come from citizens and governments since the start of the
global crisis. The banks want to have their cake and eat it too. They
secured bailout funds from governments in the first phase of the crisis,
but don't want to honor what governments told their citizens was an
essential part of the deal: the strengthening of financial regulation.

Governments, from the United States to China and Greece, had resorted
to massive stimulus programs to keep the real economy from collapsing
during the first phase of the financial crisis. By promoting a narrative
that moves the spotlight from lack of financial regulation to this
massive government spending as the key problem of the global economy,
the banks seek to forestall the imposition of a tough regulatory regime.

But this is playing with fire. Nobel Prize laureate Paul Krugman and
others have warned that if this narrative is successful, the lack of new
stimulus programs and tough banking regulations will result in a
double-dip recession, if not a full-blown depression. Unfortunately, as
the recent G-20 meeting in Toronto suggests, governments in Europe and
the United States are caving in to the short-sighted agenda of the
banks, who have the backing of unreconstructed neoliberal ideologues
that continue to see the activist, interventionist state as the
fundamental problem. These ideologues believe that a deep recession and
even a depression is the natural process by which an economy stabilizes
itself, and that Keynesian spending to avert a collapse will only delay
the inevitable.

Resistance: Will It Make a Difference?

The Greeks are not taking all this lying down. Massive protests
greeted the ratification of the EU-IMF package by the Greek parliament
on July 8. In an earlier and much larger protest on May 5, 400,000
people turned out in Athens in the biggest demonstration since the fall
of the military dictatorship in 1974. Yet, street protests seem to do
little to avert the social catastrophe that will unfold with the EU-IMF
program. The economy is set to contract by 4 percent in 2010. According
to Alexis Tsipras, president of the left parliamentary coalition
Synapsismos, the unemployment rate will likely rise from 15 to 20
percent in two years, with the rate among young people expected to hit
30 percent.

As for poverty, a recent
joint survey
by Kapa Research and the London School of Economics
found that, even before the current crisis, close to a third of Greece's
11 million people lived close to the poverty line. This process of
creating a "third world" within Greece will only be accelerated by the
Brussels-IMF adjustment program.

Ironically, this adjustment is being presided over by a Socialist
government headed by George Papandreou voted into office last October to
reverse the corruption of the previous conservative administration and
the ill effects of its economic policies. There is resistance within
Papandreou's party PASOK to the EU-IMF plan, admits the party's
international secretary Paulina Lampsa. But the overwhelming sense among
the party's parliamentary contingent is TINA, as Margaret Thatcher
famously put it: "there is no alternative."

The Consequences of Compliance

Faced with the program's savage consequences, an increasing number of
Greeks are talking about adopting a strategy of threatening default or a
radical unilateral reduction of debt. Such an approach could be
coordinated, says Tsipras, with Europe's other debt-burdened countries,
like Portugal and Spain. Here Argentina may provide a model:  it gave
its creditors a memorable haircut in 2003 by paying only 25 cents for
every dollar it owed. Not only did Argentina get away with it, but the
resources that would otherwise have left the country as debt service was
channeled into the domestic economy, triggering an average annual
economic growth rate of 10 percent between 2003 and 2008.

The "Argentine Solution" is certainly fraught with risk. But the
consequences of surrender are painfully clear, if we examine the records
of countries that submitted to IMF adjustment. Forking over 25 to 30
percent of the government budget yearly to foreign creditors, the
Philippines in the mid-1980s entered a decade of stagnation from which
it has never recovered and which condemned it to a permanent poverty
rate of over 30 percent. Squeezed by draconian adjustment measures,
Mexico was sucked into two decades of continuing economic crisis, with
consequences such as the pervasive narcotics traffic that has brought it
to the brink of being a failed state. The current state of virtual
class war in Thailand can be traced partly to the political fallout of
the economic sufferings of the IMF austerity program imposed on that
country a decade ago.

The Brussels-IMF adjustment of Greece shows that finance capitalism
in the throes of crisis no longer respects the North-South divide. The
cynics would say, "Welcome to the Third World, Greece." 

But this is no time for cynicism. Rather, it's a key moment for
global solidarity. We're all in this together now.


© 2021 Foreign Policy In Focus
Walden Bello

Walden Bello

Walden Bello is the co-founder and current senior analyst of the Bangkok-based Focus on the Global South and the International Adjunct Professor of Sociology at the State University of New York at Binghamton.  He received the Right Livelihood Award, also known as the Alternative Nobel Prize, in 2003, and was named Outstanding Public Scholar of the International Studies Association in 2008. His books include: "Counterrevolution: The Global Rise of the Far Right" (2019) and "Capitalism's Last Stand?: Deglobalization in the Age of Austerity" (2013).

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