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Greece and the European banking crisis

9 July 2015

In the last week or so the news media have been dominated by the story of the Greek anti-austerity referendum.

At first it seemed that the “mainstream” media were saying one thing, and “social” media another.

Before the referendum I would see things liike “Don’t blink, Greece” on Facebook, while the “mainstream” media (including the Greek media) were presenting it as Greeks voting for or against the Euro, or the Eurozone, or the EU.

Celebrating the "No" vote in the anti-austerity referendum, Syntagma Square, Athens (photo: Julia Bridget Hayes)

Celebrating the “No” vote in the anti-austerity referendum, Syntagma Square, Athens (photo: Julia Bridget Hayes)

But that doesn’t seem to be the way most Greeks saw it. It seems that most of those who voted “No” were voting against austerity without end, and ever-increasing debt. They were being asked to vote on whether they should jump into a bottomless pit. Should anyone be surprised that a majority voted “No” to that?

Well, according to this article, no one was more surprised than the present Greek government, which called the referendum in the first place. Europe is blowing itself apart over Greece – and nobody seems able to stop it – Telegraph:

Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium.

That one reads a bit like a conspiracy theory.

But since the referendum the media consensus seems to have fallen apart, and we have seen a lot of wildly contradictory stories about what happened, what is happening, and what will happen in future.

It didn’t take long for the “Putin is the bad guy” meme to surface in the Western media: Is Putin Playing Puppetmaster in Greece? – The Daily Beast:

The weekend’s stunning repudiation of further European bailouts by a strong majority of Greeks shocked Brussels and beyond. That 61 percent of Greek voters want nothing to do with European Union “fixes” to their country’s grave fiscal crisis, which has preoccupied the EU for five years, represents a shocking development to Eurocrats.

What happens next is on everyone’s mind. Unless Athens comes up with a revised—and more plausible—finance plan very soon, expulsion from the Eurozone appears imminent. While that could cause financial instability for Europe, and may bring bad tidings far beyond, there’s one country that seems to be savoring this crisis.

That’s Russia. To the surprise of no one who pays attention to Vladimir Putin’s persistent efforts to undermine the EU and NATO, Moscow is poised to reap political benefits from Greece’s financial collapse.

Celebrating the "No" vote in the anti-austerity referendum in Athens (photo: Julia Bridget Hayes)

Celebrating the “No” vote in the anti-austerity referendum in Athens (photo: Julia Bridget Hayes)

Both that and the Daily Telegraph‘s story seem to be in the classic conspiracy theorist mode. They are different conspiracies, that’s all. The first suggests a conspiracy between the Greek government and the Eurocrats, the second a conspiracy between the Greek government and Putin.

I think this one comes closer to the truth in economic terms, though it could also be seen as a conspiracy theory, positing a conspiracy between the the governments of countries like Germany and France and the banks: Mark Blyth | Why Greece Isn’t to Blame for the Crisis:

the Greek deficit was a rounding error, not a reason to panic. Unless, of course, the folks holding Greek debts, those big banks in the eurozone core, had, over the prior decade, grown to twice the size (in terms of assets) of—and with operational leverage ratios (assets divided by liabilities) twice as high as—their “too big to fail” American counterparts, which they had done. In such an over-levered world, if Greece defaulted, those banks would need to sell other similar sovereign assets to cover the losses. But all those sell contracts hitting the market at once would trigger a bank run throughout the bond markets of the eurozone that could wipe out core European banks.

I’m no economist, but that article seems to jibe with what professional economists I know have been saying, and I see no reason to disbelieve them. And it seems that other economists have been saying similar things:

… the financial demands made by Europe have crushed the Greek economy, led to mass unemployment, a collapse of the banking system, made the external debt crisis far worse, with the debt problem escalating to an unpayable 175 percent of GDP. The economy now lies broken with tax receipts nose-diving, output and employment depressed, and businesses starved of capital.

But they persist, like medieval quack physicians, in believing that if bleeding the patient does not result in improvement, bleed them some more.

And then there is this article, which points to an important and often-overlooked truth behind all this: Greece just taught cap[italists a lesson about what capitalism really means – Business Insider:

Debt is not a guarantee of future payments in full. Rather, it is a risk that creditors take, in hopes of maybe being paid tomorrow.

The key word there is “risk.”

If you’re willing to take the risk, you’ll get a premium — in the form of interest.

But the downside of that risk is that you lose your money. And Greece just called Germany’s bluff.

The IMF loaned Greece 1.5 billion euros, due back in June, and Greece isn’t paying it back. Greece has another 3.5 billion due to the ECB in July, and that looks really doubtful right now.

This is how capitalism works. The fact that it took a democratically elected government whose own offices are adorned with posters of Lenin, Engels, and Guevara to teach this lesson to Germany is astonishing.

Over the last few decades we have seen a growth in the popularity of the ideology of neoliberalism, with its proponents saying that socialism is outdated and discredited. They stress the importance of “free markets”, and proclaim the merits of privatisation.

But here, as elsewhere, we see the essential flaw in this. What the exponents of privatisation want is privatisatiion of the rewards, but not privatisation of the risks. Thus they can be reckless with other people’s money and pay themselves enormou7s bonuses, but when things go belly-up, they can always apply to the public purse for bail outs.


The Daily Beast describes Greece’s “No” to endless austerity is “stunning” and “shocking”. and many of the other Western news media said similar things. Some speculated about whether the Greeks were too stupid to know the consequences of what they were voting for, and some implied that they were stupid because they voted “no”.

But if the Greeks were stupid, they nevertheless remembered more of Grade 3 arithmetic than the Western media who criticised them.

If you have a tank that is being filled at ten litres a minute, and at the bottom the tap is open and draining 17,5 litres a minute, the tank is soon going to be empty.

That is what the Eurozone troika wanted the Greeks to vote “Yes” to, while themselves standing on the hose filling the tank to reduce the inflow still further.

The Greeks aren’t that stupid, but the Western media who expected and urged them to vote “Yes” apparently are.

Back at the end of the last century the United Nations set several “Millennium Goals” to be achived by 2015, among which was the go0al of reducing povery. But in 2015 the Eurozone troike was not satisfied that, as a consequence of their austerity policies, 60% of Greek pensioners were living in poverty. They wanted it to be increased to 70%, or even 80%.

Would anyone in their right mind actually vote for that?

Yet the Western media and a lot of Western politicians seemed to expect them to.

The consequences of this imbroglio will not be confined to Greece, or even to Europe. They are likely to affect all of us. And nether the politicians nor the media pandits seem to be able to see any way out of it, and all offer widely differeing solutions.

Here are a few more interesting articles on the topic:

Celebratiing the "No" vote in the anti-austerity referendum, Syntagma Square, Athens (photo by Julia Bridget Hayes)

Celebratiing the “No” vote in the anti-austerity referendum, Syntagma Square, Athens (photo by Julia Bridget Hayes)

And, concerning the last, it might be well to remember this:

Therefore is the kingdom of heaven likened unto a certain king, which would take account of his servants.
And when he had begun to reckon, one was brought unto him, which owed him ten thousand talents.
But forasmuch as he had not to pay, his lord commanded him to be sold, and his wife, and children, and all that he had, and payment to be made.
The servant therefore fell down, and worshipped him, saying, Lord, have patience with me, and I will pay thee all.
Then the lord of that servant was moved with compassion, and loosed him, and forgave him the debt.
But the same servant went out, and found one of his fellowservants, which owed him an hundred pence: and he laid hands on him, and took him by the throat, saying, Pay me that thou owest.
And his fellowservant fell down at his feet, and besought him, saying, Have patience with me, and I will pay thee all.
And he would not: but went and cast him into prison, till he should pay the debt.
So when his fellowservants saw what was done, they were very sorry, and came and told unto their lord all that was done.
Then his lord, after that he had called him, said unto him, O thou wicked servant, I forgave thee all that debt, because thou desiredst me:
Shouldest not thou also have had compassion on thy fellowservant, even as I had pity on thee?
And his lord was wroth, and delivered him to the tormentors, till he should pay all that was due unto him (Matt 18:23-34).



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