And now what? Greece after its official creditor-led default

Following Greece’s recent mammoth 206-billion-euro bond swap, people wrongly believe that the private bondholders of the Greek debt lost money and that the country is on a path to recovery. The only solution for Greece remains a debtor-led default and exit from the euro-zone under the leadership of a radical democrat political movement
Vassilis K. Fouskas
12 March 2012

When Europe’s finance ministers agreed last month to the second Greek bailout of 130 billion Euros, they knew very well what to expect. They prolonged the country’s creditor-led default by re-capitalising the banks, while pushing for PSI (private sector involvement) in Greece’s debt restructuring. The deal confirmed Greece’s profound financial and political dependency on Berlin and the ECB, which ensures that even if the current discredited cabinet, or a similar successor, achieves a primary budget surplus, it may not be able to declare bankruptcy because the new bonds will be subject to English jurisdiction. Let us tackle each of these issues in turn.

How the ECB and bondholders socialised their debt

The deal with the PSI was only procured by the 130 billion euros promised by the official sector – basically the so-called ‘troika’: the EU, the ECB and the IMF. Some 30 billion euros went directly into the pockets of the bondholders as a ‘sweetener’ to convert their old paper into new bonds, swapping them with new Greek futures and paper, while generating some further action from CDS (credit default swaps – insurance taken out by the bondholders for protection against default). The rest of the money, linked to mathematical estimates and prognoses of how much debt the Greek economy can sustain by 2020 without collapsing, went directly into re-capitalising banks. Precisely through this re-capitalisation, the famous ‘haircut’ the PSI took is transferred onto the official lenders/sector. In this way, the debt held by the PSI has been socialised almost in its entirety. It will be the Greek and the European taxpayer paying for it.

As a result of this boost to the banks, the above estimates and prognoses bring the debt/GDP ratio of Greece to 120% by 2020. Note that this may still be unsustainable. Note also, that there has been no suggestion that a single penny in all this paper will go into investment, boosting real economic growth. In other words, all these efforts are pointless exercises designed to benefit the bond-dealers.

Total loss of sovereignty

Have growth prospects for Greece improved? At present Greece’s GDP is undergoing a contraction of more than 6% and, due to its deteriorating competitiveness, this contraction is likely to continue. Youth unemployment has surpassed 50% and overall official unemployment is now well over 20%. The country, moreover, borrows at 4.5%-6%, something that renders rather surreal the aforementioned estimate of a 120% debt/GDP ratio by 2020. The disintegration of the productive base of the country over the last two decades due to the competition it faced from the countries of the European core and, above all, Germany, make any futurologist betting on a substantial Greek recovery within the euro-zone sound ridiculous.

Some argue that the austerity measures that have led one-third of Greece’s society into pauperisation may yet bring forth some fruits for the political class currently in power. By the end of the next budgetary year, the discredited party system of the post-1974 era may be in a position to enjoy a primary surplus, thus increasing its degree of independence vis-à-vis the ‘troika’. At that point, the argument goes, Greece could declare a partial default on its debt obligations, refusing to pay part of its debt.

This might have been a valid argument if the current Greek negotiators had either wanted or known how to make capital out of their problem. But they did not. Those who can read Greek should read Nikos Kotzias’s marvellous account, The Politics of Survival against the Troika, Athens 2011. Kotzias, now a Professor of Politics at the University of Piraeus, is one of the most acute observers of the Greek political scene and has been an advisor to the leader of PASOK, George Papandreou.

The degree of economic and, even more so, political dependency of the Greek vassal state on external imperial agencies and structures runs so deep that the current political oligarchy negotiating the second bailout failed to achieve even this prospect of budgetary independence. A European ‘commission of experts’ will be permanently settled in Athens overseeing Greek finances and budgetary discipline. More to the point, the law governing the new bonds issued will not be subject to Greek law but to English law. This means, for instance, that the Greek parliament can neither review the legal terms of the deal nor sue in an English court, as this is both complicated and expensive. More to the point, and this is the crux of the matter, at least in theory it has been made impossible for Greece, under some future hypothetical radical democratic government, to leave the euro-zone, refusing to pay its debt obligations, or even re-denominating its debt into new drachma. No legislation could be passed by them, because this deal makes the role of the Greek parliament, that is, the role of formal liberal democracy in one country, redundant.

Elements of a programme for a united radical left

Those discredited parties and leaders currently in power in Greece herald the events of the last month or so as a triumph. Nothing can be more misleading. Once the deal with the PSI was close to completion on Friday evening, 9 March 2012, the euro slipped 1.3% against the dollar, whereas British sterling gained 0.4% against the euro. This is an indicator ‘from above’, so to speak.

The indicators ‘from below’ are, nevertheless, those that count most. More than 3.5 million Greek people now live at risk of poverty or social exclusion (data from Eurostat). There are hundreds of soup kitchens operating across the country; barter is widespread; and street clinics are visible in Athens and other urban centres, as hospitals cannot cope with emergencies. Mass lay-offs and wage and pension cuts continue and will continue with no end in sight as long as growth is elusive. If you visit the country you feel that ‘nothing is moving’. People are depressed and suicide rates have increased dramatically. There is a sharp devaluation of assets (property, land, etc.), yet price inflation remains as high as 3%. Greece is still an expensive country for the average tourist.

Having said this, the truth of the matter is quite the opposite of what has been envisaged by the bankers and their political representatives in Greece and Europe: by 2020 the private bondholder and the banks will be richer, whereas the Greek and, for that matter, the average European and British taxpayer, will be poorer. But no cow can go on supplying milk for ever without either dying of exhaustion or killing the milker with a sudden kick.

It is as clear as dawn that the current ruling elites cannot deliver economic growth. As a consequence, they cannot reverse the plight of Greek society. All these austerity measures they have taken, and no doubt will continue to take at the behest of the ‘troika’, have sawed off the branch upon which they themselves sit, that is the middle and lower middle classes of Greece – what Marx used to call ‘the classes-pillars of a regime’. That is why in the forthcoming election these elites will be voted down: already opinion polls indicate the collapse of PASOK (11%) and ND (28%), disabling them from forming a majority government. In their stead, the parties of the left are forecast to poll more than 40%. The Greek people cannot vote for those who are responsible for the creation of the debt and the international humiliation of their country. Moreover, they cannot accept this insult to their intelligence, inasmuch as the ruling elites are asking the people to pay for the debt the elites created.

The radical political programme of democratic forces must be clear, unambiguous and realistic. Any united front of a radical left in Greece, which is not yet a political reality, should be formed on the following key premises:

  • Auditing of the debt and immediate default on the country’s debt obligations, especially of the so-called ‘odious debt’.
  • Immediate exit from the euro-zone and denomination of debt into new drachma
  • Nationalisation of banks and imposition of capital controls to avoid hard currencies entering the new Greek economy buying assets indiscriminately, while encouraging FDI from abroad in the productive sectors of the economy in order to promote export-led growth
  • Investment in solar energy and green projects, especially reviving organic farming in order to boost exports
  • State intervention into aggregate demand management by boosting wages and purchasing power, thus offsetting the negative impact of devaluation on households, especially the poor ones
  • Taxing large estates, especially those held by the Church, as well as Greek shipping capital
  • Drastic cuts in the country’s defence budget and the re-orientation of Greek foreign policy towards its Balkan neighbours, Turkey, Cyprus, NATO, Russia, China and the Arab world. The key aim here must be the demilitarisation of the Aegean and the Eastern Mediterranean and the development of regional organisations and NGOs promoting the fraternity and solidarity of all peoples of the former Ottoman and Soviet spaces

This re-launched Hellenism in the European periphery and beyond is the only way to herald a new post-socialist Enlightenment, which does not separate the Asian from the European and the ‘civilised French’ from the ‘barbaric Turk’. To me, there is nothing more obvious than the fact that the ruling elites cannot deliver any of the above, so the forthcoming election will herald their long overdue downfall. My humble message is that the Greek left must unite in order to face the challenge and begin to put itself in a position of power to deliver the above programme.

Had enough of ‘alternative facts’? openDemocracy is different Join the conversation: get our weekly email


We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData