A Greek tragedy on the London stage: the City, the Eurozone crisis and an urban dark age to come


Capitalist perpetrators of the crash are intent on using the opportunity provided by austerity to divert political and economic power to compliant nation states and emergent para-sovereign bodies, such as the EU Troika, that operate outside the constraints of democratic control and public accountability. 

Simon Parker
20 July 2013

Greek public sector workers strike at wage cut announcement. Demotix/Stathis Kalligeris. All rights reserved.


“Nor public Flame, nor private, dares to shine;
Nor human Spark is left, nor Glimpse divine!

Lo! thy dread Empire, Chaos! is restor’d;
Light dies before thy uncreating word:
Thy hand, great Anarch! lets the curtain fall;
And Universal Darkness buries All.

Alexander Pope, The Dunciad, Book 4 (1743).

The financial crash of 2007-8 that saw trillions of dollars wiped off the value of pensions, savings, stocks and national income accounts had its origins in the sub-prime mortgage market in the United States [pdf] and the obscure financial instruments by which these default-prone loans were subsequently parcelled up and traded.

Low-income people in poor urban neighbourhoods trying to keep a roof over their heads became the last El Dorado for an unregulated international credit industry that took in institutional prospectors from Iceland to Hong Kong.

The commodification of property—or what David Harvey refers to as ‘the secondary circuit of capital’—is the alpha and omega of the worst global economic crisis in living memory. ‘Urbanisation’, as Harvey observes, ‘is a field for the deployment of capital, and in particular surplus capital’. Everyone, but especially the urban poor and the growing global army conventionally referred to as ‘the precariat’, will live with its damaging effects for decades to come.

As Harvey also explains, cities have provided the key sites of resistance to the depredations of the world economy and the global environment by a self-serving governing, financial and corporate elite.

From the Paris Commune to the Occupy movement, from the indignados of Spain and the protesters of Syntagma square in Greece, from the summer riots in England in 2011 and Sweden in May 2013 and more recently to the mass urban protests of June 2013 in Turkey and July in Brazil—dissent and contestation is once more finding its voice in the public spaces of the world’s urban centres.

These protesters are clear that the roots of the crisis lie not in a failure of financial self regulation but in capitalism’s complete decoupling of the economic from the social, and the hyper-concentration of the world’s wealth into the hands of a very small but astonishingly powerful number of states, banks, transnational corporations and super-rich investors.

Over the past 30 years or so, democratic controls on the operation of global financial markets and over how businesses can ethically trade and operate have all but disappeared. At the same time the distinction between ‘public’ and ‘private’ in terms of government-business relations has largely been eroded, and with respect to the relationship between financial and political elites it has become entirely meaningless.

Set against the increasingly fragile economies of cities around the world is the financial colossus that resides within the municipality appropriately known as ‘the Corporation of London’. As the novelist and author John Lanchester reminds us, ‘The City is collectively astonishingly wealthy. It earns 19 per cent of Britain’s GDP.’ That means 1 pound in every 5 of Britain’s national net wealth is made within the square mile of the City of London—the smallest and richest Treasure Island in the world. In 2008, the year that Lehman Brothers collapsed, City financiers awarded themselves £19 billion in bonuses.[i]

City bonuses fell to a more modest £13 billion pounds in 2012—but this is still more than four times what the government expects to receive from the sale of the UK’s last remaining public asset—the  Royal Mail. The consequences remain, however, ‘almost entirely toxic’. ‘City money’, writes Lanchester, ‘is strangling London life’. But the toxic effect of The City and its financial institutions are not limited to the super inflated London property bubble, its tentacles spread from the mean streets of Detroit, Chicago and Cleveland to the debt burdened finance ministries of Dublin, Lisbon, Madrid, Rome and Athens.

At the centre of most of the dubious financial transactions that fuelled the City’s high octane bonus culture was Goldman Sachs—euphemistically known in financial circles as ‘Government Sachs’ because of its revolving door relationship with key central bankers, including the recently appointed Governor of the Bank of England, Mark Carney, and senior national and intergovernmental policy makers including former US Treasury Secretary Hank Paulson.

Goldmans played a key role in the promotion of cross-currency swaps in which a government would issues debt priced in, for example, dollars and yen that are then converted into euros and then swapped back into the original currencies at some future date.  In 2001-2002 Goldman Sachs’ London team were involved in a secret and complex deal with the Greek government that in effect allowed $10 billion worth of debt swaps to be hidden from the national balance sheet. Goldmans made a huge profit from the inflated transaction fees in putting together the derivate. Christoforos Sardelis, the head of Greece’s Public Debt Management Agency, said Greece ‘didn’t understand what it was buying and was ill-equipped to judge the risks or costs’. Nevertheless one very beneficial outcome of the deal was to create the impression that Greece was reducing its public debt liabilities, whereas thanks to an estimated €2.3 billion loss on the Goldmans swap it was racking up even more debt. By 2003, Standard and Poor was so impressed by Greece’s illusionary debt management policy that it upgraded the country’s debt rating from A to A+.

Save the banks

Six years later it had become clear that with a debt in excess of €300 billion, Greece could no longer service its debt repayments and S&P moved to downgrade Greek debt to junk bond status. In 2010 the EU discovered the scale of the public accounting discrepancy that the Greek government with the aid of Goldman Sachs had been able to conceal. The reported 2009 budget deficit of 3.7 per cent turned out eventually to be 13.6 per cent—more than four times higher than the limit allowed by EU rules. Eventually, the Greek Prime Minister, George Papandreou was forced to agree to a bail-out and a Troika comprising the European Central Bank, the European Commission and the International Monetary Fund effectively took command of the Greek economy.

The key EU negotiators of the Greek ‘rescue package’ included Mario Draghi, President of the European Central Bank and an ex senior Goldman Sachs partner and fellow Goldman Sachs alumnus, Jean-Claude Juncker, the former President of the Eurogroup of EU Finance Ministers. As Prime Minister of Luxembourg, Juncker understands the requirements of international financial investors and the need to protect their assets from prying eyes and unwarranted tax demands. His country has some of the most secretive banking laws in Europe and during the 2000s Luxembourg’s financial institutions carried assets worth in excess of 2,600 per cent of GDP (the highest figure for Greece was 206 per cent). 

Along with Angela Merkel and Mario Draghi, Juncker was instrumental in imposing the bail out and the accompanying painful public expenditure reductions that were designed to prevent Greek banks and the Greek state from defaulting—thus ensuring that the Greek population and not foreign investors would endure the ‘hair cut’.

Since the crash in 2007:

  • - Greece’s deficit has grown from 6.8 per cent of GDP to 15.6 per cent in 2009 and falling to only 9.2 per cent in 2011.

- The Greek economy has shrunk from a real GDP growth rate of 3 per cent in 2007 to ever increasing contractions in the subsequent austerity years of -0.2 per cent, -3.2 per cent,-3.5 per cent and -6.9 per cent in 2011.

  • - From 2004 to 2009 average wages grew from between 2 and 7 per cent per annum, in 2010 salaries fell by 3.8 per cent and in 2011 by 4.7 per cent.
  • - Household disposable income growth fell from 9.4 per cent in 2007 to minus 10.3 per cent in 2010.
  • - Unemployment, which had been 7.7 per cent in 2008 climbed to 17.7 per cent in 2011 and is currently running at 27 per cent. 
  • - Nearly two-thirds of under-25 year olds in Greece are without work.

Recognising that the greatest share of the austerity measures had fallen on pensioners, those with low incomes and the unemployed, the IMF wrote something of a mea culpa in its ‘ex post evaluation’ of the Exception Access Agreement for the Greek government in June 2013:

There are also political economy lessons to be learned. Greece’s recent experience demonstrates the importance of spreading the burden of adjustment across different strata of society in order to build support for a program. The obstacles encountered in implementing reforms also illustrate the critical importance of ownership of a program, a lesson that is common to the findings of many previous EPEs (ex-post evaluations) (my emphasis). 

But Christine Lagarde’s evaluators saved their harshest criticisms for the IMF’s European partners: 

the EC tended to draw up policy positions by consensus, had enjoyed limited success with implementing conditionality under the Stability and Growth Pact, and had no experience with crisis management. The Fund’s program experience and ability to move rapidly in formulating policy recommendations were skills that the European institutions lacked (my emphasis). 

Unsurprisingly this was a position that the European Commission rejected. A Commission spokesman told The Daily Telegraph

We fundamentally disagree. With hindsight we can go back and say in an ideal world what should have been done differently. The circumstances were what they were. I think the Commission did its best in an unprecedented situation. We tend to forget that when the discussions were taking place the situation was much, much worse. The fear of contagion and the high volatility… 

Juncker was rather more conciliatory, claiming that the EU was ‘overly optimistic’ in the early stages of the €240 billion bail out operation—not about the effectiveness of the austerity package but about the Greek government’s readiness to engage in deep public sector cuts early enough. There were no apologies, however, for forcing the leader of PASOK into a humiliating repudiation of his party’s social democratic values and political past—however corrupt and self-serving its hold on power had undoubtedly become. In his endorsement of the European Financial Stability Facility for Greece, George Papandreou wrote: 

We support the ambitious privatization and public asset development plan under the program…our Party has decided and supports the deep structural reforms in the labor, product, and service markets. The agreed adjustment of labor market parameters have been taken in order to give a strong upfront impetus to unit labor cost reductions and promote employment and economic activity [sic]. 


European decisions that will continue to enhance the effectiveness of the wider firewall, calm the international bond markets, and oversee the European and global financial system in areas such as rating agencies, will be crucial for the effectiveness in similar programs. [PDF]

Despite the fact that well over 60 per cent of the Greek people oppose the scale and severity of the austerity measures—privatisations, fire sales of government assets, wage reductions, increased taxes, pensions cuts and public service reductions (including the switching off of the national state TV and radio network) are all seen as essential by the Troika and the current coalition in order to reassure the world’s bond markets that the sick man of Europe is continuing to take the extremely nasty medicine. 

It’s politics, stupid… 

However, a report by J.P. Morgan[ii] explains what investment banks and their political allies in Northern Europe really thought the roots of Southern Europe’s debt crisis were: 

At the start of the crisis, it was generally assumed that the national legacy problems were economic in nature. But, as the crisis has evolved, it has become apparent that there are deep seated political problems in the periphery, which, in our view, need to change if EMU is going to function properly in the long run. 


The political systems in the periphery were established in the aftermath of dictatorship, and were defined by that experience. Constitutions tend to show a strong socialist influence, reflecting the political strength that left wing parties gained after the defeat of fascism. 

Here we have a frank admission that the very principles of social solidarity and democratic advance which the European Community’s founding fathers—Jean Monnet and Robert Schuman hoped would banish Nazism and Fascism for ever—are identified as a major obstacle to the imposition of the type of financial and labour force discipline required by ‘self-regulating markets’ in the southern Eurozone: 

Political systems around the periphery typically display several of the following features: weak executives; weak central states relative to regions; constitutional protection of labor rights; consensus building systems which foster political clientalism; and the right to protest if unwelcome changes are made to the political status quo.


The shortcomings of this political legacy have been revealed by the crisis. Countries around the periphery have only been partially successful in producing fiscal and economic reform agendas, with governments constrained by constitutions (Portugal), powerful regions (Spain), and the rise of populist parties (Italy and Greece).

Since the end of the dictatorships, not only have Europe’s Mediterranean governments failed to stand up to the demos and organized labour, and to silence protests against austerity and inequality, but there has been a lamentable decentralization of power to regions and cities where local citizens are more emboldened to demand control of the economic system and the institutions involved in its reproduction. The strategy of the J.P. Morgan doctrine—and there is reason to believe it is widely shared among the chief negotiators of the Troika—is to stockade all economic and political power at the level of the nation state, the better to apply ‘post democratic’ shock doctrine to the extremities of neoliberal-resistant Euroland.

A new urban dark age

One of the most visible consequences of the devolved austerity of the on going financial crisis is that cities around the world are literally being switched off. Civic leaders across the United States and Europe no longer have the money even to keep streetlights on all night. Throughout most of July, the Greek Central Union of Municipalities decided to suspend all municipal services because the central government has committed itself to sacking 15,000 public sector employees by the end of 2014 and to transferring another 12,500 to new positions this year.

Under the instructions of the German Finance Minister, Wolfgang Schäuble and the Troika, the Greek parliament passed the bill by all of 3 votes in the face of angry protests. But as the uneven geography of the new austerity intensifies we can expect to see more allied municipal and regional contestations of this nature. The keenly fought battle over an independent Scotland, and the recent speech by the leader of Plaid Cymru, Lean Wood, on the need for a national-regional alliance as a counter-balance to the economic strangle-hold of the City of London, are examples of a more assertive territorial politics in the context of the UK which are beginning to find echoes in England’s cities and regions, as Alan Harding pointed out in his keynote lecture to the University of York’s Centre for Urban Research’s Post-Crash City conference.

The Federal Republic of Germany has 130 billion euros in combined municipal debt with no prospect of Angela Merkel coming to the rescue any time soon—this in part explains the widespread hostility in Germany to further bail-outs for the government of Greece. Der Spiegel reports that even the small town of Goslar in Lower Saxony needs to cut its spending by half to balance its books. The mayor has therefore decided to turn off the streetlights at midnight in a bid to save money. He is likely to be elected unopposed at the next election. Matthias Bernt has shown that in East Germany, rather than ‘growth coalitions’ we are now seeing ‘grant coalitions’ as entire cities find themselves dependent on welfare hand-outs from Berlin. How long this internal solidarity will continue as Germany increasingly polarises between a conservative west and a socialist east remains to be seen. But with Anglo-American style workfare being enthusiastically rolled out by the Merkel government, the idea that Germany has somehow managed to escape the global financial crisis through export led growth needs qualification. In 2008 (when the EU27 recorded its lowest unemployment figures for some years) unemployment rates of over 15 per cent were recorded in Halle, Leipzig and Berlin [Eurostat].

In England and Wales some £7.5 billion is being cut from local authority budgets up to 2015—still only 40 per cent of the City bonuses paid in 2007—but amounting to a 25 per cent cut in budgets meaning some local councils will be unable to meet their statutory service obligations. Some may even follow West Somerset into bankruptcy. According to the Local Government Association, the Conservative-Liberal Democratic Government has no plan for managing the serious problems with local authorities finances or service provision. This is seen as a problem because ‘in the current funding environment…there is an increased risk that a number of councils become financially unsustainable’.[iii] Outsourcing and the strategic abandonment of all but essential services is becoming the norm in local authorities in many parts of England and Wales—with the deepest cuts affecting the larger and poorest conurbations outside London.

In the United States, Motown—the once great city of Detroit, home to Ford and General Motors has officially filed for bankruptcy. Its state-appointed emergency manager, Kevyn Orr is threatening ‘haircuts’ for municipal bond holders but also redundancies and pension withholdings for municipal workers.  Decades of the erosion of the city’s tax base by mostly white population flight and the contraction of the auto industry has left the city bankrupt and deemed unworthy of ‘too big to fail’ bail outs from the state and federal executives. As Jamie Peck pointed out in his keynote speech ‘Pushing Austerity’ for the Post-Crash City conference, dozens of smaller US cities are also on the point of bankruptcy and many are reducing their local governments to fire and police services, and some such as Josephine County in Oregon, not even that. Worse even than Goslar, the city of Highland Park in Michigan has had all its street lights removed because it is unable to pay its electricity bills—just one of the many cities that are going dark right across America as a result of austerity-driven public divestment and a political climate that is increasingly hostile to the provision of collective goods through taxation.


For the still powerful financial masters of the universe like J.P. Morgan and Goldman Sachs, the problem with the world’s economy is that it suffers from an excess of democracy and political permeability. The emergence of the Troika demonstrates the advent of an incompetent, fractious yet powerful para-sovereign cartel that is partly dependent on the constitutional legitimacy of national-state executives but strongly conditioned and staffed by a small coterie of international financial elites. The raison d’être of the Troika and its equivalent in the United States surrounding Ben Bernanke’s Federal Reserve Bank and the ‘too big too fail’ behemoths of Wall Street is the maintenance of an unregulated financial system that nevertheless makes full and extensive use of national sovereignty to meet the costs of its morally hazardous gambling addiction.

At each descending territorial scale, the cascading revanchism of austerity capitalism intensifies and depoliticises—denying regions and cities the resources to sustain economic life and growth and instrumentalising their political leaders as agents of self-inflicted social harm. In her final book published in 2004, Dark Age Ahead, Jane Jacobs wrote:

Post-agrarian states do not increase their wealth by aggrandizing territories and seizing lands and natural resources…the key to post-agrarian wealth is the complicated task of nurturing economic diversity, opportunity, and peace without resort to oppression. Dark Ages and spirals of decline are in prospect for agrarian cultures that can’t adapt themselves to generating wealth through human ingenuity, knowledge and skills.

The 2007-8 financial crisis and its long aftermath has seen the domination of the world’s economy by those who have used their ingenuity, knowledge and skills to generate wealth only for a tiny fraction of the world’s population—while impoverishing and commoditising the rest. Cities and regions which have been too long the victims of this asymmetric warfare of accumulation by dispossession must become the rallying grounds of a counter-movement that re-socialises the economy as a medium of exchange based on principles of care and solidarity. Without concerted collective action against the dehumanizing logic of the self- regulating market, the threat of a long de-civilising spiral of decline remains an all too real prospect. Another world is not only possible, but as Immanuel Wallerstein insists, creating an alternative to capitalism is an urgent and essential task for the long time survival of human society.

[i] John Lanchester, Cityphilia, London Review of Books, 3 January 2008 http://www.lrb.co.uk/v30/n01/john-lanchester/cityphilia

[ii] J.P. Morgan, ‘The Euro area adjustment: about halfway there’, Europe Economic Research, 28 May 2013


[iii] Department for Communities and Local Government: Financial sustainability of local authorities - Public Accounts Committee http://www.publications.parliament.uk/pa/cm201314/cmselect/cmpubacc/134/13404.htm



This article is part of an editorial partnership between openDemocracy and the Centre for Modern Studies at the University of York. It was funded by the University of York's Pump Priming Fund, the British Academy, and York's Centre for Modern Studies.





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