Greek Despair: Will the EU and the Bankers Finally Accept That Austerity is Killing Greece?

13.2.12

“Despair has enveloped Greece. This weekend the bankrupt nation, for that is what it is, began negotiating the latest act of a drama that many fear will end in catastrophe — financially, socially and politically.”

These are the opening words of an article for the Observer by Helena Smith, who has reported from Athens for more than 20 years, and who says the country is “on the edge of a precipice.” On Sunday evening, the Greek parliament accepted a €130bn (£108bn) rescue package from the EU and the International Monetary Fund, to prevent a default, in March, on €14.5bn in maturing debt. However, this also involves a further €3.3bn in wage, pension and job cuts, including axing another 15,000 civil servants’ jobs by the end of the year (and the loss of 150,000 public sector jobs by 2015), and imposing a 22 percent cut in the minimum wage and pension cuts of €300bn, even though Greece is already in a catastrophic state that will not be helped by a further round of savage cuts.

This is because the austerity measures of the last few years have led only to further economic stagnation, and are driving Greece into what I believe it is appropriate to describe as a death spiral. The country is in its fifth successive year of recession, and on Friday a two-day general strike began, and demonstrators took to the streets of Athens, which erupted in fire and violence.

Dealing with this history, and the latest phase of the crisis, Helena Smith wrote, in an article entitled, “I fear for a social explosion: Greeks can’t take any more punishment”:

[T]he truth — as unpalatable as it may be for the IMF, EU and European Central Bank, Greece’s “troika” of creditors — is that, far from plugging the country’s budget black holes, the harsh austerity pursued in the name of deficit-reducing goals has pushed it towards economic and social collapse. Relentless wage and pension cuts, tax rises and cost-cutting reforms have left the country a shadow of itself. In its fifth successive year of recession, Greece is a hollowed-out version of what it once was, coming apart at the seams a little more with each day. Men and women forage through rubbish bins late at night. More sleep on the streets. Last week as Eurostat, the European statistic agency, announced that poverty had engulfed more than a third of the nation, it was revealed that unemployment had also exceeded one million people, from a record 19% to 20.9% in one month.

“Nothing functions. Nobody pays anybody any more and the state is not just crumbling but in complete stasis,” said Giorgos Kyrtsos, a prominent political commentator. “These guys,” he said of officials in the troika of European agencies negotiating the bailout, “should really lose their jobs. They’ve miscalculated everything. I understand on Friday the police trade union called for their arrests. Well, maybe they are right!”

With the rhetoric at such levels, and none of the sacrifices having improved the situation so far — at more than 10% last year, Greece’s budget deficit was way off target — it is easy to see why, among politicians at least, there is little stomach for more. “We don’t want to turn our country into a marginalised third world state where citizens are forced to live on slave wages,” said one MP, requesting anonymity ahead of the vote. “If we go along with these measures, that is exactly what will happen.”

Giorgos Kyrtsos told Helena Smith, “The loan agreement may be voted through, just as our foreign lenders want, but it will be a hollow victory. Despair is growing. We are soon going to see incredible scenes with everyone taking to the streets if these measures are applied. Something has to give, and at this point it has to come from Europe.”

Last Wednesday, during a 24-hour general strike, George Pantsios, an electrician for the country’s public power corporation, told the Independent, “People are scared and haven’t really realised what’s happening yet.” He explained that he had “only been receiving half of his €850 monthly wage since August.” He added, however, “once we all lose our jobs and can’t feed our kids, that’s when it’ll go boom and we’ll turn into Tahrir Square.”

“We’re already bankrupt,” Corinna Panopoulos, a state psychologist, said. She added, “This new agreement will simply be our tombstone and the meeting will be the final curtain of this play.” A single mother with two children, she said her salary had dropped by a third and she had “moved in with her mother to make ends meet.” She added that her sister, Christina, who had a job as a supply teacher, would be losing her job in June.

The website ANSAmed also reported on one particular aspect of the suffering of the Greek people — the rise in homelessness. “Hospitals in Athens are becoming hospices, as increasing numbers of homeless people are feigning illness in order to ensure a few nights of sleeping in warm surroundings and being fed,” the website explained. Tasos Antonopoulos, the chair of employees at the Laiko hospital, told the weekly Epikaira, “Unfortunately, public hospitals are becoming centres for the homeless. They pretend to have pains or heart problems so that they can be admitted to hospital and be sure of having a bed and some food for a few days. They only need to lie down on a folding bed, just for the time needed for clinical analysis.”

ANSAmed also noted that, in central Athens, hundreds of people at a time “patiently wait in line in the dining room of the city’s administration building.” The director of the centre, Dimitra Noussi, told the BBC that “the centre where the homeless are fed, initially built for people with drug and alcohol addiction, has suddenly turned in to a centre for people suffering from poverty.”

An analysis by Epikaira established that these people were “not suffering from psychiatric problems, or even from alcoholism or drug addiction. Instead, they are individuals who, until a short time ago, had homes and jobs and suddenly, with the arrival of the crisis, lost everything. Others, meanwhile, are small businesspeople or shopkeepers who have been declared bankruptcy. These are people with a medium to high cultural level, aged between 30 and 45. The study shows that some of the older individuals lost their jobs shortly before they were due to receive a pension.”

So, with this level of suffering, what is the answer for Greece? In Der Spiegel last week, in an assessment of how counterproductive the austerity measures have been, and will continue to be, Stefan Kaiser suggested that what was needed was for Greece to be allowed to go bankrupt, but with structured support from the troika. As he explained:

If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut. In other words, it needs to go bankrupt.

And it’s not just private creditors who will have to forego a large part of their outstanding Greek debts. It is also other European countries and the European Central Bank. That would be expensive for taxpayers across Europe, and it would also be economically risky. Indeed, no one knows what consequences a Greek bankruptcy would have for other crisis-ridden countries like Portugal, Ireland or Italy. But at least it would be an honest solution.

Of course, things wouldn’t stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam — in other words, a kind of Marshall Plan.

All this would be very expensive, and German taxpayers would also be forced to do what they have feared from Day One — which is to pay for Greece. But this solution has two major advantages. The payments would be limited, and they would actually help Greece.

This view is not an isolated one. As Der Spiegel reported on Saturday in a round-up of the German media’s commentaries, the center-right Frankfurter Allgemeine Zeitung noted:

[T]he series of austerity programs have brought the economy to a standstill and forced the people, who are continually being asked to make new sacrificies, onto the streets … Greece presents a desolate picture, in terms of its economic structures, competitiveness, social cohesion and political system. In other parts of the world, it would be called a failed state. It is time that the Europeans admit that fact and take the necessary action.

Whether the resulting conclusion is that Greece can no longer be saved from bankruptcy, or whether it should be persuaded — or forced — to leave the euro zone, is ultimately a question of math. Which option will end up being more expensive for Greece and its public and private-sector creditors? No finance minister knows the answer, and no economist can calculate it reliably. This uncertainty is deadly, both for the markets and for countries. It must be ended quickly.

The center-left Süddeutsche Zeitung captured the inescapable logic  of the death spiral — that the more austerity is applied, the less recovery is possible:

The EU partners and the Greek government have a baleful fear of the truth. Which is the following: Greece can not actually be saved (with the current approach), not by slashing the minimum wages, and not with cuts in salaries, which are supposed to remain frozen until the country has lowered its unemployment rate from nearly 21 percent to 10 percent. But where will the new jobs come from? After all, there is hardly a major company that wants to invest in Greece at the moment, which also means there is little hope of achieving the planned revenues from the privatization of state-owned assets. Lower wages also mean lower tax revenues and less consumption.

[…] if the country can’t be saved by turning the thumb-screws, then what? Then the only alternative is radical debt relief on the part of the major private creditors, the banks and the hedge funds. The European Central Bank would probably also have to write down some of its holdings of Greek debt. Then, Greece would need a Marshall Plan on top of that. All of this is expensive, and progress will not happen overnight. But there are no longer any real alternatives.

In addition, the Financial Times Deutschland noted, “Greece is currently trying to do something impossible: which is to reform the economy in the midst of a deep depression. That simply doesn’t work … It is high time to give the Greeks hope of growth once again. The fact that many reforms are still needed in Greece is no reason to drive the country into complete ruin through disastrous crisis management. That doesn’t help the Greeks. And neither does it increase the chances of German taxpayers having to pay less.”

The opinions above strike me as sensible — and probably more so than a chaotic default, and a departure from the Euro project, which, although it would theoretically lead to a balanced state of self-determination with the return of the drachma, might first of all involve something close to economic extinction for the entire country. However, unless a coherent solution is reached, as suggested above, a chaotic departure from the Euro seems inevitable, and the Greek people deserve better than to be sacrificed so wilfully, when other possibilities exist, if the EU and the bankers will acknowledge that destroying an entire country is not acceptable.

Andy Worthington is the author of The Guantánamo Files: The Stories of the 774 Detainees in America’s Illegal Prison (published by Pluto Press, distributed by Macmillan in the US, and available from Amazon — click on the following for the US and the UK) and of two other books: Stonehenge: Celebration and Subversion and The Battle of the Beanfield. To receive new articles in your inbox, please subscribe to my RSS feed (and I can also be found on Facebook, Twitter, Digg and YouTube). Also see my definitive Guantánamo prisoner list, updated in June 2011, “The Complete Guantánamo Files,” a 70-part, million-word series drawing on files released by WikiLeaks in April 2011, and details about the documentary film, “Outside the Law: Stories from Guantánamo” (co-directed by Polly Nash and Andy Worthington, and available on DVD here — or here for the US). Also see my definitive Guantánamo habeas list and the chronological list of all my articles, and please also consider joining the new “Close Guantánamo campaign,” and, if you appreciate my work, feel free to make a donation.

25 Responses

  1. Andy Worthington says...

    On Facebook, Tony TruckTone Freeman wrote:

    They should follow Iceland’s example.

  2. Andy Worthington says...

    But they’re trapped in the Eurozone, Tony, whereas Iceland wasn’t. I previously thought dropping the Euro and returning to the drachma, and self-determnation, would be a good idea, but from what I’ve been reading lately that might be as much of a death sentence as the EU/bankers’ noose. That’s why bankruptcy and banking write-offs seem to be the only way forward. It also fits with my assessment of the moral dimension to this sad story — that the EU and the banks were able to discern that Greece should not have been lent vast amounts of money, because its economy was not strong enough, and there was some pretty obvious cooking of the books, but they did so anyway. As a result, they shouldn’t regard it as acceptable to strangle an entire nation when they are also to blame.

  3. Andy Worthington says...

    Toia Tutta Jung wrote:

    Greece has become Europe’s scapegoat.

  4. Andy Worthington says...

    Thanks, Toia. Yes, that seems to be the case. The best that can be said as an alternative is that it’s a kind of laboratory experiment, where various possible cures can be tested, even though the cures are turning out to be toxic. Hence the need to scrap this approach, and to work out how to allow Greece a chance to recover.

  5. Andy Worthington says...

    Colin Brace wrote:

    Take note, people: the attack on the Greek social welfare state is just a warmup for the kind of “structural adjustment” the Banksters would like to impose on the rest of Europe.

  6. Andy Worthington says...

    Yes, agreed, Colin. With austerity now a political commitment everywhere (in the absence of any socialists calling for full employment), there will be savage attacks everywhere on the welfare state, but also on workers. The question is: will attacking workers (by and large defined as the middle classes in these days of eviscerated class consciousness) lead to the people fighting back, or will too many remain distracted – by divisive propaganda (blaming the “workshy” poor and unemployed and disabled, as is happening, horrifically, in the UK), through celebrity culture, and through the myopic self-interest that’s been relentlessly cultivated by corporations and governments for the last 30 years.

  7. Andy Worthington says...

    Winston Weeks wrote:

    Well said.

  8. Andy Worthington says...

    Gabriele Müller wrote:

    thanks, Andy, sharing

  9. Andy Worthington says...

    Fausta Ulgheri wrote:

    Andy I don’t think people will remain distracted too long if these attacks to social welfare state will go too far, just as greeks are showing now.

  10. Andy Worthington says...

    Lewis MacKenzie wrote:

    What made you change your mind about Greece exiting the Eurozone, Andy? If Argentina’s abandonment of it’s peg to the dollar is any example, the short term impact would be exceedingly painful, but in the long term the Greeks might be much better off.

  11. Andy Worthington says...

    Pete Johnson wrote:

    F**k the bankers. and the WTO. And the IMF. And the Bush/Obama decision to bail out the banks and hire Goldman Sacs to control the world economies from Washington DC. Support Occupy. End the Empire.

  12. Andy Worthington says...

    Gabriele Müller wrote:

    I think they will default anyway, and in consequence, there will be a 100% write- off and a subsequent exit from the Eurozone. I don’t see how this can be prevented in the long run. What we are witnessing now is just a desperate attempt at buying time from those who have too much money stuck in Greece, Germany, for once, but quite a few other Eurozone countries as well, that are already in danger of following on the Greek path. And banks, of course. They are merely trying to compensate for the losses now. 130 billion seems like a hell of a price for a bit of time though, but my bet would be, it’s going to be some more money being burnt still in the end. The only question is: whose money? What we are seeing here is a hidden bank bailout, nothing more, and as a result, more european countries on the outskirts will face a similar crisis.

    Austerity measures will factually kill the Greek Economy, no matter whether it stays in the Euro- Zone or not. Staying, however, means prolonging the suffering and increasing the debt at a mindboggling speed. Plus, the collateral damage on civil peace and democracy.

  13. Andy Worthington says...

    David Knopfler wrote:

    Interesting to hear Hedge-fund billionaire Soros in Der Speigel making the case for Keynesian loosening of monetary restraint to Chancellor Merkel… having, with his fellow billionaires, loosened all the axles on the economic car, as also happened in 1926-29, he now wants her to create a Eurobond to steer into the skid with. Is his Trustfund currently holding too much Greek debt? I don’t know enough about the insanities of contemporary global economics to really have a strong opinion if she should or not. I feel more like the chap who when asked for directions says, well I wouldn’t start from here.

  14. Andy Worthington says...

    Andrew Brel wrote:

    Great article. Thanks.

  15. Andy Worthington says...

    Lewis MacKenzie wrote:

    Not read all of this yet:
    The Greek elite – prefers to eat its children | Bill Mitchell – billy blog
    http://bilbo.economicoutlook.net/blog/?p=18172

  16. Andy Worthington says...

    Colin Brace ‎wrote:

    Lewis: the short answer is Argentina could decouple from its peg to the dollar because it still had its own currency, the peso. It was traumatic, to be sure, but it survived and growth returned, partly because of a strong market for its agricultural exports (read soybeans). Greece really is in a different situation.

  17. Andy Worthington says...

    Thanks for the comments, everyone. I was out for the afternoon, and so unable to respond. I think the main question out of all the comments was yours, Lewis, asking why I’d changed my mind about Greece exiting the Eurozone and reinstating the drachma. I haven’t entirely changed my mind, Lewis, but I’ve been reading analyses of the situation that have suggested the changeover could see a total economic collapse, so that staying within the Eurozone but persuading the troika to behave differently might be more constructive. I’ve been reading Bill Mitchell’s post, which provides a detailed explanation of why leaving the Euro is still the best way forward, and the following explains it well:

    “The Greek government could defy the rest of the world completely (as in the early days of the Argentinean default) or offer re-denomination in terms of the new currency. Once re-domination was accepted then its so-called “sovereign debt” problem vanishes. It becomes a sovereign currency-issuing nation with debts only denominated in its own currency – which means it could always service those debts.

    “Should the bond markets decide that they do not want to invest in Greek currency financial assets then the Greek central bank – newly legislated to support the national interest – could provide funding to the Greek treasury without any fundamental financial problems.

    “You will not read of this sort of analysis in the general media because while possible it represents the anathema to the neo-liberals. They would hate it to be understood that a nation had these options available to them.

    “Its new currency would depreciate – by how much is anyone’s guess. The likelihood is that the depreciation would be sharp and large. But its downward spiral would be finite and reversed as trade flows turned in favour of exports and the real cost of imports rose.

    “While the Greeks do not have large quantities of natural resources like Argentina did when it defaulted and floated in 2001-02 it still has very desirable assets that are exchange rate sensitive – its tourism capacity. I predict that there would be a boom in that sector virtually immediately and investment funds would flow into it.”

    But this is a response from a reader named Neil Wilson, which neatly encapsulates the contrasting problems I’ve also been reading about:

    “The problem with Greece is that the default has to be managed, and managed well by somebody who knows what they are doing.

    “Can you see that person?”

    I can’t see that person either.

  18. Andy Worthington says...

    David Knopfler ‎wrote:

    Andy – While I agree price would be a big factor for providing tourism… the Mediterranean being absurdly fished out and offering only squid in the cafes and that this was allowed to happen, has not been helpful either.

  19. Andy Worthington says...

    George Kenneth Berger wrote:

    Shared and Dugg.

  20. Andy Worthington says...

    I think overfishing is a problem everywhere, isn’t it, David? Actually, when I was in Athens this summer, it was always slightly unnerving, at dinner time, to see restaurants in almost every available space, filled with thousands of people eating – even with an estimated 10 percent reduction in the number of tourists. So many people! I hadn’t been so overwhelmed by our collective appetite as human beings since being in Barcelona a few years ago, and on these occasions I tend to be slightly perturbed by how many of us there are, everywhere, and how unsustainable it all looks.
    And that, looking forward, doesn’t augur well when so many countries are so dependent on tourism …

  21. Andy Worthington says...

    Thanks, George. Good to hear from you.

  22. Jeff Kaye says...

    There is no way out in the framework of maintenance of the capitalist system. After the Frankfurt bankers , the City and Wall Street have bled dry the weak sisters in the Eurozone alliance, they will, to maintain their falling profits and market shares, have to return to cannibalizing each other. When such time comes, the ghosts of Verdun and the Somme will rise up before us harbingers of both past and future. A new act must dawn on the world stage for the forces of revolutionary change, the battles of the 20th century having spent themselves in weary efforts to make change real and permanent, but not having found the formula.

    The future of the current order only guarantees economic depression and endless wars. What new and hopeful child waits to be born out of this painful, endless pregnancy of despair?

  23. Andy Worthington says...

    Thanks for the comments, Jeff.
    You pose a very good question of profound importance. I don’t know the answer, of course, but I do feel the urge to be involved in a brand new political party of the people, and I won’t be doing any kind of idly standing by while the precipitous decline of Western capitalism continues, devouring countries in its wake.
    I’m hoping your images of war don’t come to pass, of course, as they sent a shiver through me (being someone who, like many Europeans, became a pacifist through knowledge of the two world wars), but anything could happen. The only reassuring thing is that we got to this point as much by accident as by design, or as much through stupidity as by design. While the financial markets and corporations are full of genuinely disturbingly immoral or amoral people, and cruelty stalks the corridors of political power, there is also a lot of simple greed, denial and inflexible thinking, including amongst the political class, who might adapt when the real social and economic cost of the misplaced austerity programs kicks in.

  24. Rey says...

    Do you ever get the idea that this sort of thing is just a dry run for the US? “Let’s give it a shot with Greece and if that doesn’t completely blow things up, we’ll try again in California (people can just sleep on the beach!), and then go national. then we’ll have our cake and eat it too.”
    I assume that money isn’t disappearing, it’s just being redistributed with a little more urgency and a lot less empathy. Or maybe that’s a lot more urgency and a little less empathy. Yeah, I think that’s it.

  25. Andy Worthington says...

    Good to hear from you, Rey. My feeling is that, ever since 2008, when the banks broke the economy so spectacularly and then essentially got away with it through those vast bailouts in which governments took on the toxic debt but left the banks’ money-making arms intact, we’ve entered a new phase of greed and madness, and this is the result. Inflexibly wedded to notions that criminals, so long as they’re bankers, cannot be prosecuted and are, with a few exceptions, too big to fail, governments have continued to support them as the only way forward, fearing – or believing being told – that meltdown will ensue otherwise. From my way of thinking, though, however crooked the Greek government may have been when cooking the books to enter the Eurozone, the lenders should have known. Very simply put, they need to be obliged to write off all their unwise debts, and collectively we need to scale everything down and start again, but with regulations and with prison sentences for financial criminals.

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