Greece: bail out the economy not the banks

Photo: George Ampartzidis
Protest in Syntagma Square Athens

By Andrew Williams

A wave of industrial action and street protests has spread across Greece over the last month as opposition mounts to the government’s proposed next round of cuts and attacks on living standards.

Strikes in the private and public sectors have been widespread; disrupting power, transport, the media, education and other areas. Tens of thousands have flooded into Athens’ Syntagma Square outside the Parliament, where a tent camp has been set up and demonstrators have had to defend themselves against riot police and tear gas.

The protestors reject the Greek government’s economic policies, which are based on accepting the harmful dictats of the European Union and International Monetary Fund. This week demonstrators mobilised against the Greek Parliament’s vote of confidence in the government, which was passed on 21 June. The next focus of demonstrations is the run up to the 28 June when the Parliament will vote on the additional round of austerity and privatisation measures.
The economic difficulties Greece is currently experiencing are due to the EU and IMF’s approach to Europe’s peripheral economies. Their priority has been to bail out the exposed banking sector of Europe’s core economies by transferring the maximum resources possible from the weaker peripheral economies – Greece, Portugal and Ireland. In these economies, rather than measures to raise economic growth, restore tax revenues and thereby continue paying off its debts, the EU/IMF framework has been to impose extreme austerity measures and suck all available government cash out of the economies to pay off the private banks at inflated interest rates.

The result of this in Ireland, Portugal and currently Greece, is simply to create a further fiscal crisis and force a further round of austerity, driving the economy into a vicious downward spiral of lower growth and increasing rather than reducing the debt.

In Greece the government’s decision to adopt the EU/IMF’s proposed austerity framework, has driven an economy that suffered the mildest recession in the Euro area in 2009 (except Cyprus) into its current crisis.  Even the Greek official statistics agency (ELstat) has pointed out  that these reductions in public spending contributed to deepening its recession. In 2010 Greece’s economy contracted by 4.5%, in April this year GDP was 8.9% below its peak and all the international agencies forecast further contraction this year. As a result instead of Greece’s national debt falling from 127% of GDP in 2009, it is now in excess of 150%.
May 2010’s EU/IMF so called ‘bail-out’ saw the most powerful capitalist states agreeing to transfer €110bn of their public funds, not towards assisting Greece, but to bailing out their own banks that were holding Greek debt. Presented as a ‘loan’ to Greece, they concluded a set of agreements with the Greek government that provide for the transfer of huge amounts of wealth from Greece to the US and EU core states, both immediately and over the years to come.

Leaving aside capital repayments, the interest payments that Greece currently makes are colossal, running at 6.6% of its GDP (in comparison to the US, which itself has huge public debt but interest payments only amount to 1.4 % of its GDP). The lending rates applied to Greece are punitive, in some cases double what EU/IMF can borrow at.

To restructure the economy and allow for these huge transfers abroad, the EU/IMF insisted on the most severe fiscal tightening package amounting to 11% of GDP, which the government is trying to be achieve through its current vicious austerity package of huge cuts to public services, welfare and job losses.
Having weakened the Greek economy, the more powerful capitalist states are coming back to extract a greater flow of wealth. The government’s finances have been reduced to a level where it cannot meet the next payments due, so the creditors are demanding a further lowering of living standards and a gigantic privatisation programme.

The specific proposals the Greek Parliament is currently discussing are a further tightening of austerity (increase public savings by €6.5bn this year and €28 billion through to 2015) plus a €50bn sale of state assets. The US dominated IMF is pushing for privatisation, deregulation, low wages and taxes particularly in the economic sectors that can most benefit US capital. Additionally the framework being promoted will allow for public assets to be sold off at fire sale prices.
The world’s most powerful loan sharks want to further subordinate Greece so that the wealth Greek people create is transferred directly to them. In addition to raising the level of profit these sharks want the economy restructured so that they, not Greeks, can expropriate it.
The EU/IMF have insisted the Greek Parliament agrees this package next week (28 June) and has made it a condition before it will deliver the July €12bn instalment of the already agreed ‘loan’. The way the EU/IMF and Greek government agreed to structure last year’s ‘bail-out’ package means that if this money is not delivered Greece will not be able to make its July ‘loan’ repayments so will find itself making a ‘disorderly default’. This may well be in the interests of US and British banks, but it would further damage the Greek economy and have knock on effects particularly across Europe. There has been a clamour to break up the Euro, with calls for Greece to exit the Euro-zone, again particularly from US and British quarters.
There are alternatives that Greece should be considering, including a managed default. Continuing to follow EU/IMF prescriptions will not rescue its economy; just make it poorer and more indebted; effectively enslaved to more powerful capitalist interests.

What is needed is an economic package that stimulates growth and job creation, which in turn requires increased public investment.
To part finance this Greece’s wasteful military spending should be transferred to more productive use. (In 2010 Greece military spending was 3.2% GDP, higher even than Britain’s 2.7%) To direct other Greek resources towards financing investment may require the Greek government to exercise greater control in some sectors of the economy, such as banking and shipping.
In its external relations, instead of the flow of resources going out of Greece, they need to be re-directed inwards. The Greek government should be demanding the EU use its structural funds (which transfer income from richer to poorer countries) to help bail out the Greek economy. The EU has ample resources to finance a recovery program in Greece. The government should not collude with the EU/IMF draining away of Greek resources. As part of this, there needs to be an orderly renegotiation of the public debt to achieve the inevitable debt write-down and reduction of interest charges. A moratorium on interest payments should be considered (as it could release funds equivalent to 6.6% GDP towards investment). If Greece’s creditors were not willing to negotiate reasonable new terms it should renounce its debts.
The protestors in Greece should be supported as they struggle against these latest economic attacks. Solidarity should be expressed as they oppose the Greek government adopting the latest EU/IMF package. If there is to be a bail out, it should benefit the Greek economy, not just US and European banks.