Greek crisis deepens as banks get another bailout

Photo: SpirosK
"Enraged Citizens" protest at Greek Parliament

By Nicky Dempsey

European Finance Ministers have just agreed to release their share of the latest bail-out funds of Greece’s creditors. This amounts to €8.7bn of a total emergency disbursement of €12bn, part of the overall €110bn agreed last year.

It should be clear now that this is a bailout of Greece’s creditors, not the Greek economy. For example this latest instalment alone exceeds the entire budget deficit for the year to date of €10.3bn. The emergency is caused by the fact that Greece’s creditors – primarily European and US banks plus hedge funds and other parasites – are exiting the Greek debt markets each time they are paid out in full on the debts they hold as they fall due. The EU/ECB/IMF had assumed that some of these creditors would instead choose to maintain their holdings of Greek debt by purchasing new bonds when the previous debts reached maturity. This assumption was derided at the time even by mainstream (non-bank) commentators.

Saving the Banks

The latest Franco-German plan to protect Europe’s banks is a complicated scheme to try to ensure this ‘rollover’ of debt by the creditors, by means of lavish inducements for them. Its essence is to swap shorter-dated Greek government debt for much longer dated obligations, for example by changing 5 year bonds into 30 year bonds. This would have the effect of marginally lowering the annual Greek government debt interest payments to those creditors, but at the cost of significantly increasing the total level of the debt once the total cumulative rise in interest payments is included. The plan is similar to the ‘Brady Bonds’ imposed on a host of Latin American nations in the 1980s, which condemned a continent to poverty for a generation to prop up US banks. In this way, the Franco-German plan hopes to save Europe’s banks from the consequences of their own failed lending decisions.

Just as the plan to bail out the creditors will only increase indebtedness, the cuts in public spending approved last week by a majority of the Greek parliament will only increase the deficit. A further four years of cuts totalling €28bn were adopted and legislation will be brought forward to privatise €50bn of state-owned assets.

Neither policy will actually contribute to the stated objective of reducing the deficit. The Greek economy is already contracting under the impact of prior public spending cuts. As a result of this economic contraction tax revenue has slumped so that the deficit is widening once more. Likewise, removing the state’s cashflows from profitable public corporations by privatising them will only have the effect of further widening the deficit once more. For unprofitable public corporations, the state will be saddled with their debts, without any means of servicing them.

This too is reminiscent of the 1980s, when the ruling class offensive was cloaked in the theoretical nonsense of monetarism. It is not coincidental that the actual policy prescription in both periods- lower wages, public spending cuts and privatisation – was same then and now, despite the very different stated objectives, controlling inflation and reducing the public sector deficit.

This is because the actual policy aim in both instances is the same. It is the drive to increase the profitability of capital by significantly lowering the wage share of national income.

At the same time the global imperialist offensive against the workers’ states and the colonial and semi-colonial revolutions requires an increase in military spending by the imperialists and their junior allies. The depth of the economic crisis in the main imperialist centres increases the pressures on those junior regional allies. It should not be forgotten that France and Germany opened the negotiations for the €110bn package with a demand that cash-strapped Greece increase its purchase of approximately €4.3bn in military hardware from both countries.

The Politics of the Crisis

Despite mass protests and strikes against these measures, there was little dissent in PASOK against the measures. Just one parliamentary deputy from the nominally socialist ruling party voted outright against the package, while another has risked expulsion for voting against the detail of the legislation.

In a wholly cynical manoeuvre the Rightist New Democracy (ND) party said that without accompanying tax cuts for businesses and the rich it would oppose the package- secure in the knowledge that these were ruled out by the EU/ECB/IMF as they would increase the deficit.

The parties to the left of PASOK, the communist KKE, the militant socialist coalition SYRIZA and the ecologist Greens opposed the measures. Combined they achieved 14.7% of the vote in the last parliamentary elections in 2009. This rose to a combined 18.7% for these parties in the national share of 2010’s local elections (mainly for KKE), and with other leftist parties their vote almost certainly now accounts for more than 1 in 5 voters.

There is a lack of clarity among the international left on the issues at stake in Greece and all the crisis-it countries of the EU. Nowhere is the confusion greater than in Britain where anti-capitalism is forgotten in the rush to anti-Europeanism and economic nationalism. This simply echoes the calls from the majority of British bourgeois opinion for the break-up of the Euro, and which views Greece simply as the first domino to be pushed over.

As the stance of the New Democracy highlights there are powerful forces in Greece who are content to pursue their own class interests even while risking utter catastrophe for the overwhelming majority of Greek society.

Socialists counterpose to this internationalism and a class analysis of their own. Specifically in the case of Greece this means shifting the maximum possible burden of the crisis onto the shoulders of the international banks whose interests are represented by the foreign agencies of the EU/ECB/IMF. As default seems almost inevitable, the negative consequences of it must be minimised for the mass of Greek society.

But it also requires a challenge to the unreformed, post-dictatorship settlement of Greek society –with the lowest wage share of national income in Western Europe, the lowest level of spending on education and health and the highest profit share for its capitalist class. Politically, ND openly represents the alliance of Greek capitalists, generals and the most reactionary elements in society, while PASOK is happy to play the role of ‘loyal opposition’. When ND stepped down early from government in 2009 it was content that both its policies would be continued by PASOK and that the latter would pay the main political price for implementing them.

In the main European imperialist centres such as Britain all progressives should argue for large-scale debt write-offs for Greece, no punitive measures in the event of a default and an international programme of investment to raise the productivity of the Greek economy – that is bailing out the Greek economy, not the banks. In the event of a Greek default triggering the collapse of one or more bank, these should be nationalised without compensation of their shareholders and bondholders.

A thriving Greek economy is in the interests of majority of Europe’s citizens. Current policies are instead creating a wasteland of economic depression, surging unemployment and widespread poverty for those in work. The deficit and the debt level are surging as a result. A policy of debt write-off by the banks and increased productive investment in the Greek economy are necessary for any revival of the Greek economy.