GREECE, WE ARE TOLD, has been released from its tutelage under the Troika – the European Commission, the European Central Bank and the International Monetary Fund. It has received a huge injection of €290 billion in total since 2010.This unprecedented act of generosity has put the country back on its feet again. This is a fairy tale from beginning to end.
Greece is still 25% poorer in 2018 than in 2007, before the Great Recession. The crisis has inflicted worse damage than the Great Depression did to Germany or the USA in 1929-33. One in five Greeks remain unemployed, with 40% youth unemployment. Wages, pensions and benefits have been savagely driven down. Homelessness, addiction and suicide have become endemic. Health and social services are in shreds.
How did this happen?
The Great Recession began as a financial crisis, as bank lending became paralysed and one bank after another failed. As the major powers rushed to bail out the banks at whatever cost, output and tax revenues dipped, which meant governments ran deficits. Public debt soared.
The debts of peripheral EU countries such as Greece become insupportable. The big capitalist countries’ banks realised they might never get back the money they had poured in. The Greek crisis also posed a threat to the Eurozone and to the very existence of the euro.
Austerity was imposed upon Greece by the Troika, who have effectively ruled the country. In effect the creditor nations used the Troika to declare the country bankrupt and take over the handling of its economic affairs.
American economic historian Barry Eichengreen correctly suggests that the moves to restructure the gargantuan Greek debt by the Troika were not done to benefit the country but the banks: “Someone, after all, had lent it all that money. In particular, German banks, led by the troubled Commerzbank, held some 17 billion euros of Greek debt. The exposure of the German private sector, including pension funds, insurance companies and thrifty burghers searching for yield, came to as much as 25 billion euros, a considerable fraction of what the Greek government owed. What was at stake, in other words, was not just the solvency of the Greek government but the stability of the German financial system.” (Eichengreen - Hall of Mirrors)
Here he agrees with Lapavitsas, the former Greek finance minister. “The real threat posed by the sovereign debt crisis has been to the banks of the core. In early 2010 there emerged the danger of a full-blown crisis for the banks of the core that held significant volumes of peripheral debt.” (Lapavitsas et al. - Crisis in the Eurozone). There was more strain because countries like Greece had run balance of payments deficits with more successful trading partners, borrowing from the core net exporting nations and going into debt to pay for their imports. In effect Greek banks were being lent money by banks in countries like Germany to lend to Greeks in order to buy German products.
So the Troika acted to bail out the French and German banks, not the Greek people. The burden of the debt was not cancelled, but laid on the Greek economy, crushing it and asphyxiating the people, like the huge rock Sisyphus was doomed to roll uphill in vain for ever. The Greek national debt remains at a monumental, and unpayable, 180% of the country’s GDP.
The IMF knows the debt is unsustainable and some of it will eventually have to be written off. But within the councils of Europe the German and Austrian governments in particular are determined to have their pound of flesh. Successive Greek governments have been impotent, prisoners of decisions taken by the Troika. The country was a colony in all but name. Has that changed? Even after the bailout Greek government spending will be under foreign control for the next 42 years.
As the end of the Troika programme was announced, Prime Minister Tsipras proclaimed, “This is a day of liberation.” He’s wrong. The pain is not over.
The Troika was concerned to preserve the euro, which was seriously under threat at the time of the crisis. Pressure was put on successive Greek governments not to devalue by withdrawing from euro membership. That could have brought the whole rickety structure of the Eurozone tumbling down.
One option for the radical Syriza government, elected on an anti-austerity ticket in 2015, was devaluation, plus imposing capital controls and nationalising the (effectively bankrupt) Greek banks, while repudiating the monstrous debt.
That would have been a blow against capitalism, the cause of the hardship. In July 2015 61% of the Greek people voted to reject the austerity terms of a bailout in a referendum. Syriza’s leadership then bottled it and submitted the country to further austerity and humiliation.
Austerity has produced only misery. The damage to the economy has been deep and long lasting. For the Greek people the bailout has been a catastrophe.