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poor Greece « Previous | |Next »
May 17, 2011

European governments are wrestling with the prospect of a fresh bailout for Greece a year after they committed €110bn to Athens, under pressure from Washington and Beijing to calm the markets, stabilise the euro and ensure the capital flows in global financial system. Greece is insolvent.

It is deeply indebted (nearing 166% of GDP) to the European (German, French) banks and the markets are demanding that Greece take a big haircut (ie. tackle its fiscal deficit and ramp up its privatisations). That means more Greeks lose their jobs ---currently, unemployment is near 14% and amongst young Greeks it is 35%.

RowsonMIMF.jpg Martin Rowson

Far from the bailout improving its access to the financial markets, Greece faces record borrowing costs, as it can only tap into the capital markets on prohibitively expensive terms. Greece has huge budget deficits, low economic growth, depressed demand, and is unable to generate exports to offset the effects of continued austerity. This is a sovereign debt crisis.

Greece is dependent on foreign borrowing to bridge the gap between its spending and revenue. The conviction in financial markets that Greece's debts are unsustainable and will ultimately have to be restructured. However, eurozone ministers appear determined to top up last year's €110bn rescue package while forcing the beleaguered country into an ever tighter fiscal squeeze.

As with Argentina in 2001 Greek debt restructuring appears to be inevitable, as piling on more debt (through another bailout) on top of unsustainable levels makes little sense. The European banks will just have to absorb the losses--- debt write-downs of 50 per cent or more.

In How to ease the eurozone’s solvency crisis in the Financial Times Paul Achleitner says that the Greek crisis indicates that:

It is clear that private capital is not willing to fund some sovereign issuers on acceptable and sustainable terms. The uncertainty about a potential default is simply too high. To defuse the sovereign debt crisis, eurozone governments have set up joint funding mechanisms – the European financial stability facility and European stability mechanism – that act as surrogate capital pools. That was crucial to stabilise the situation. But these are emergency safety nets meant to address liquidity problems, not fundamental solvency issues.

Like Ireland and Portugal Greece is in a pickle. Something has to give. Will Greece be the first country on the EU periphery to leave the single currency--the Euro?

| Posted by Gary Sauer-Thompson at 10:44 AM | | Comments (5)


An interpretation of Martin Rowson's cartoon.

The Greeks took loans from the International Monetary Fund and cut spending. Poverty and unemployment have soared. It's not working as the recession has deepened and looks set to continue.

The EU (and IMF) have adopted the creditors point of view--that of their big banks--and they appear to be saying that a country that has accumulated too much debt must be punished, so as not to encourage “bad behavior.”

According to Mark Weisbrot in The Guardian the EU/IMF 's narrative is that that Greece has no choice but to cut spending, privatize, and enact other “reforms” because it is “broke.” In this narrative, the European authorities are helping Greece, forcing the country to take the necessary “tough medicine” and restore its solvency, so the economy can grow again.

An alternative narrative is that Greece is bargaining with creditors, as well as the European authorities, who are pursuing their own interests in opposition to the interests and well-being of the vast majority of Greeks. They refuse to help Greece adopt a growth option.

Instead the European authorities are squeezing Greece indefinitely, causing irreparable harm to the economy and subjecting millions of people to unnecessary unemployment.

Australia is very lucky. It has low debt, low unemployment and economic growth. Ordinary Greeks must be coming increasingly disenchanted with the country’s ongoing austerity measures. Are they increasingly tempted by the idea of the country defaulting on its debts?

If the Greek population rejects the austerity measures being imposed on them, will the measures be implemented by the Greek Government?

Naomi Klein's "disaster capitalism" was both history and prescription. The kind of people the IMF represents will not rest until every country is forced into a neocapitalist economy in which the rich thrive and the poor pay the price