What’s Really Happening in Greece

23:55 Fri 14 May 2010. Updated: 01:17 15 May 2010
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The primary narrative I see represented is that the Greeks spend “too much” on their social programs (and to pay their civil servants) and that they’ve been profligate generally and need to cut back, where this means slashing social spending. There may be a little truth to this tale, but there’s a lot more going on, which Michael Hudson exposes.

The larger story is complicated by various opaque financial instruments; it’s also easier to blame bad actors than to see the larger system as broken (a problem that afflicts human reason early on—see “Political Turmoil in Legotown”). There’s also the fact that the money is on the side of people telling the bankers’ side of the narrative.

But, what’s really going on is massive transfer of wealth from the poor to the rich.

Let’s call the “Greek bailout” what it is: a TARP for German and other European bankers and global currency speculators. The money is being provided by other governments (mainly the German Treasury, cutting back its domestic spending) into a kind of escrow account for the Greek government to pay foreign bondholders who bought up these securities at plunging prices over the past few weeks.

—Michael Hudson. “The People v. The Bankers”. CounterPunch, 11 May 2010.

The profoundly antidemocratic concentration of financial policymaking power in Europe is driving this approach:

Political, social, fiscal and economic power is being transferred to the EU bureaucracy and its financial controllers in the European Central Bank (ECB) and the IMF, whose austerity plans and related anti-labor programs direct governments to sell off the public domain, land and subsoil wealth, public enterprises, and to commit future tax revenues to pay creditor nations.

—Michael Hudson. “The People v. The Bankers”. CounterPunch, 11 May 2010.

Given the amazing power that the central banks have, why aren’t they subject to democratic control? The usual answer here is about “stability”, the implication being that the messy and dirty democratic process might be overtaken by popular sentiment, and that with a fear of such an occurrence the financial sector will lack the confidence to invest. So the banking controls are made “independent”—that is to say, unaccountable. What occurs then is that instead of the (at least nominally) democratic governments reining in the bankers, the bankers instead rein in the governments, forcing bailouts, regressive fiscal policies, and so on. Which is exactly what we’re seeing during the current crisis.

In the longer term, consider the fact that per-worker productivity has risen vastly in the last 30 years, that corporate profits (even subtracting for various kinds of fraud) have risen similarly, but that real wages in the US haven’t since 1979. This is clear evidence of upward wealth transfer. Consider also that the average person’s debt (consumer and mortgage) has also exploded—with the financial sector reaping the benefits. These are not accidental occurrences, but the result of systematic moves to “financialize” the economy, which rewards the financial sector and punishes other sectors—including industry generally, not just labor.

The long-term lowering of taxes in the US and other Western economies has “freed” more money throughout economic classes, although to radically differing extents. And the response to this on the part of the wealthier sectors has been to buy more hard assets, especially real estate. This makes it necessary for people lower down the chain to attempt to do the same, thus increasing demand, further inflating the bubble, and crucially driving up debt as mortgage sizes increase—thus transferring to the banks much of the money that workers gained from tax cuts.

The tax cuts, however, mean that the government doesn’t get back from the banks what it previously got back from higher taxes for everyone, and so it raises money by other means. Which is what Greece has done:

[I]t has issued bonds to finance the deficit resulting from these tax cuts. The buyers of these bonds (mainly German banks) are demanding that Greek labor (and now German taxpayers as well) should bear the burden of tax shortfalls. German and other European banks and bondholders are to be repaid at the social cost of drastic cutbacks in pensions and social spending — and if possible, by more privatization sell-offs at distress prices.

—Michael Hudson. “The People v. The Bankers”. CounterPunch, 11 May 2010.

The Greek populace understands at least some of this, and doesn’t like it—hence the riots.

I’m not sure how things will turn out there, although my sympathies clearly lie with the Greek populace and not with the bankers. However, this scenario makes me even more concerned for Ireland and its economy, particularly because the Irish are spectacularly unlikely to resist similar “austerity measures”, and can thus look forward to what seems likely to be a dismal economic future.

One Response to “What’s Really Happening in Greece”

  1. AndrewJackson Says:

    > Given the amazing power that the central banks have, why aren’t they subject to democratic control?

    Better yet, get rid of the central banks. They obviously don’t lead to greater economic stability as advertised and are probably actually making things much worse. At the very least they are powerful, opaque, and as you say undemocratic. That’s not a good combo.

    Greece (and just about the entire western world) has been profligate, that shouldn’t be minimized. Bribing voters with their own money works, most people want a free lunch, so politicians (and creditors btw) are motivated to indulge the illusion. Central banks make it easy to conjure more cash for bribes, which leads to unsustainable bribing and inflation. Inflation is effectively a tax that nobody voted for levied by a group of bankers that nobody voted for. Also not good.

    Deep subject, short comment.

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