Greece: Economy on the brink of collapse

FRFI 214 April / May 2010

On 11 March, over 60,000 demonstrators in Athens marched in protest against the crippling austerity measures imposed by the social democratic PASOK government. Along with the demonstration in the capital, there were at least 68 other protests around the country, many breaking out into clashes with the police. Coinciding with the protests was a 24-hour general strike, the second that week, which brought the country to a standstill. The only public transport working was the rail system that operated for a few hours to allow workers to take part in the demonstrations. News broadcasts were also suspended as crucial media workers walked off the job. Strikers and protesters banged drums and chanted slogans such as ‘no sacrifice for plutocracy’ and ‘real jobs, higher pay’. People draped banners from apartment buildings reading: ‘No more sacrifices, war against war’ (The Guardian 11 March). The Greek people have made it clear that they will not quietly submit to this onslaught by the ruling class.

The Greek government is attempting to clear the country’s 300bn euro (£259bn) debt through savage cuts to public services. Pressure to implement such cuts has come from the EU, headed by Germany and France. During February and March this year, Greek Prime Minister George Papandreou attended several meetings with German Chancellor Angela Merkel and French President Nicolas Sarkozy to discuss the possibility of an EU bailout for Greece. Sarkozy highlighted the importance of supporting the Greek government: ‘If we created the euro, we cannot let a country fall that is in the euro zone. Otherwise, there was no point in creating the euro…we must support Greece because they are making an effort, or else there will be no more euro.’

On 25 March France and Germany reached a deal on a bail-out loan which would consist mainly of European money but also money from the IMF. To date the Greek government has resisted borrowing, fearful that to do so would worsen Greece’s already tattered credit rating and cause further political instability for the government. Germany in particular has been keen to strengthen the role of the European Central Bank as a means to directly intervene within a country’s economy. Merkel, opting for this open neo-liberal model, made it clear that if Greece does not take the money, it will have to be cold and clinical in its implementation of austerity measures. There has been a high degree of German chauvinism in relation to Greece, expressed most crudely in the suggestion in the German press that Greece sell off some of its islands and the Acropolis to help finance its debt! At least, unlike British imperialism, they offered to pay.

Debt everywhere

Greece cannot be allowed to default on its debt because to do so could set a precedent in Europe, undermining both the euro and the European imperialist project (see FRFI 213). Greece has been highlighted in the media for its economic irresponsibility but its situation is not so very different from that of many other European countries. For example, though Greece’s deficit stands at 13%, Ireland stands at 11.5%, Spain 11.4%, Portugal 9.3% – all well above the euro zone’s target of 3%. As for Britain, its public deficit is heading towards 13% in 2010. So why are Greece’s problems gaining so much attention? Firstly, Greece had a history of defaulting on sovereign debt before joining Europe, a history that European imperialism does not wish to see repeated. Secondly the Greek people have a history of protesting against austerity measures, a history that is being repeated now.

Speculators create reality

Trade is soaring in one of the most speculative forms of derivatives; credit default swaps (CDS), which played a key role in driving Bear Stearns, Lehman Brothers and American International Group (AIG) into bankruptcy. A CDS is an insurance-type contract that permits banks and hedge funds to place bets on whether or not a company, or even a country, will default on it debts. The unregulated nature of CDS trading is such that speculators have an incentive to push companies or countries toward bankruptcy. According to one analyst, ‘It’s like buying fire insurance on your neighbour’s house – you create an incentive to burn down the house.’

Smelling blood in the air, banks and hedge funds have rounded on Greece like vultures around a decaying corpse. Financial institutions have essentially ‘bet’ on worsening economic woes for Greece, including the possibility that the country will default on its debt. The effect of such activities is to further aggravate Greece’s crisis – so much so that the cost of insuring Greece’s debt has more than doubled in a year from $35bn to $85bn. This has infuriated Papandreou, who has attempted to ban the speculative actions of hedge funds in Greece and called on the US to ‘crack down on speculators’ during a meeting with President Obama on 9 March. Merkel also complained that hedge funds should ‘not be allowed to speculate against states’.

Greece’s debt is also a big problem for the tentative British economic recovery, as Britain ‘owns a fifth of Greek bonds; if Greece defaults, the write-offs will impact on our banking system as severely as any other in Europe’ (Will Hutton, The Observer 14 February 2010).

Demonstrations continue

The meddling and pressure imposed by imperialist countries will not stop strikes and demonstrations in the coming weeks and months as the Greek people continue to revolt. What is essential for the development of a movement is for the Greek Communist Party (KKE) and the main unions to clearly split from Papandreou’s PASOK government and in turn to ally themselves to the radicalised and angry youth who have organised huge demonstrations in recent years.

Andrew Alexander