For several months now the eyes of world are focused on Greece, the “weak link” in the eurozone economy, as the country is fighting to survive against bankruptcy over soaring deficits (standing at 14% of GDP), astronomical debt (at a whopping 130% of GDP), and—more important than anything else--a collapsing productive sector. In many ways, the Greek saga has been worth following because the economic aspects involved merely represent the mirror image of everything we have associated politics with in the age of financialization.
The plot involves a bit of everything: massive corruption (Greek ruling system), lying and accounting tricks (the culprits are the Greek governments and Goldman Sachs), hypocrisy and opportunism (mainly from the EU side of the equation), suspense (the Greek crisis has spread and is engulfing Europe), and the political leaders (Greek Prime Minister Papandreou, Frau Merkel), and plenty of action (strikes, demonstrations, death and destruction).
How the story will end is really anyone's guess, but a disconcerting finale (restructuring of the debt and default), or even a more terrifying end (Greece’s removal from the eurozone), is not an improbable outcome – and that in spite of, or perhaps because of, the three-year, 110 billion euro “rescue package” launched by the EU and the IMF.
The Greek “rescue package” is a seriously flawed financial plan. First, it is conditioned upon the successful implantation of a structural adjustment program that contains harsh austerity measures which will hurt workers, pensioners and the poor and dismantle an already scant welfare system. Greece already ranks among the most unequal societies in the world, with 20 percent of the population living below the poverty level, and its social services resemble those of an undeveloped rather than those of a developed country.
Further, the austerity measures of wage cuts, pension reductions and sharp tax hikes will depress spending and lead to severe job losses for an economy that is already facing double digit unemployment rates. It is estimated that unemployment will increase by an additional 6 percent because of the EU/IMF imposed austerity measures and the GDP is expected, according to official estimates, to shrink by 4 percent this year and by another 3% in 2011.
The contraction of the economy will add further to Greece’s debt problem. In two years from now, the debt to GDP ratio will stand at 150 percent. Whether this fact is really a concern or not of the architects of the “rescue package” for Greece invites serious doubts and suspicions, especially when taking into account that the eurozone loans carry a fixed interest rate of about 5 percent, which is not lower than what Greece was borrowing prior to the outbreak of the debt crisis (and contain no element of subsidy ), and that the size of the original debt is left intact at the end of the third year period.
In sum, Greece is being asked to implement an amazingly harsh structural adjustment program which will only make the economy worse off and cause immense human suffering but will still end up with an unmanageable sovereign debt crisis. No wonder then why Greece is listed on top of the countries to default and Moody’s International Service has downgraded Greece’s ratings to “junk” status. Also little wonder why this “rescue package” has the labor movement up in arms and why even the opposition party, the highly opportunistic neoconservatives, who ruled Greece for the last five and a half years and are much to blame for the current situation, oppose the austerity measures associated with it.
To be sure, the Greek debt drama has touched off a firestorm of public reaction that is uncommon even for Greece itself. The wrath of the people is not directed simply against the austerity measures but against the ruling system itself as the economic and financial crisis has finally brought to the surface all the perversions and deformities of a political culture that thrives on graft and corruption, thanks to the existence of a paternalistic state where kickbacks constitute routine practice for the provision of public services. At the May 5th unprecedented demonstrations in Athens and other major cities, the marchers yelled “thieves, thieves” and “burn the parliament down, it is a bordello.”
The public anger over corruption and administrative inefficiency is certainly justified even if it comes from the same citizenry that has allowed the two major political parties to retain their monopoly of political power by voting largely on the basis of clientelist expectations. However, what is often ignored in discussions about corruption in Greece (hardly a unique problem in politics today) is the symbiotic relationship there exists on the one hand between state and the two parties that have alternately held power since the re-establishment of representative democracy in Greece (1973) and the dependence on the other of the two party system on an indigenous parasitic capitalist class which lives off the state budget. The plundering of the public wealth for the benefit of the domestic economic elite is done largely in the form of huge public work contracts (always with a hefty kickback to the politicians involved) and tax evasion. State protection is also provided to the domestic business/industrial/financial class for labor law violations, environmental pollution, illegal construction, etc.
The capitalist class in Greece has always been dependent on the state, but the debt crisis has now generated irresolvable contradictions within the specific dynamics of the socio-economic and politico-economic context of Greek capitalist development that the economic and fiscal crisis has given rise to a strikingly severe political crisis, perhaps not very dissimilar to those political crises that have led in the past to the emergence of authoritarian regimes. Indicative of how profound the contradictions are today within the dominant political culture of Greece, the business/industrialist/financial class has also declared open season on the political system and on professional politicians, sensing correctly that the rules of the existing political model are now a liability, an encumbrance which needs to be overcome by taking the reins of political power directly into its own hands.
The Greek debt crisis has already spread to other eurozone member states and the governments of Portugal, Spain, Italy and France are already making commitments to cut public spending in order to reduce budget deficits and control the size of sovereign debt. Austerity measures, which the massive European Financial Stabilization mechanism of some 750 billion euro, with the IMF participating in the arrangements to preserve financial stability for the euro, make an absolute necessity, open up a new chapter in terms of neoliberal economics and will define the EU political economy for many years to come.
Greece, however, as the “weak link” in the eurozone economy, and being in the ironic and tragic position of having had imposed on itself an EU/IMF “rescue package” which will sink its economy deeper into recession and cause severe social disruption and create a political crisis of possibly colossal dimensions, will have an extremely hard time making the adjustment and debt restructuring or default becomes inevitable. There is also the prospect that within two to three years Greece’s membership in the eurozone will reach a dramatic end (and perhaps for some other Med club member states as well) as a two-track Europe cannot provide the financial stability needed for the euro. Such a development will have adverse short-term effects, but it also provide an opportunity for the launching of a new political economy whereby society is organized not around economic but rather on social terms. As things stand, it is clear that the EU cannot offer such a prospect.