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Greecing the skids on the European social compact

February 13, 2010 Leave a comment Go to comments

Lab Rat

Greece must renounce its debt.

Yes, we said it: Greece must renounce its public debt, withdraw from NATO, and slash its military budget. It is the only game changer the George Papandreou, the Greek prime minister, has left.

It will result in an attempted (probably successful) coup by the military, and expose the monstrous machinations of Washington and Wall Street to get their hands on the trillions of dollars currently locked up in the European social compact. And, it is the only move which will end Papandreou’s silly whining about the lack of real support for the Greek socialist government – as if Washington, Bonn, London and Paris gave a tinker’s damn about the prospects of socialist rule in Greece.

Papandreou, President of the Socialist International, the worldwide organisation of social democratic, socialist and labour parties, and President of the Panhellenic Socialist Movement (PASOK)  is struggling to figure out how to eviscerate social democratic institutions in order to come up with the cash needed to pay bankers on Wall Street.

According to one report, those cuts (which are said to eventually total 4 percent of Greece’s GDP – a recession level event in itself)  have already targeted some of the most important constituents of the social welfare state:

In the run-up to the conference, Papandreou proposed drastic cuts in government spending. They included cutting Greece’s budget deficit by a massive 4 percent of GDP in 2010, increasing the public sector retirement age by two years to 63, freezing wages and cutting bonuses, while imposing a 10 percent increase in fuel prices. These cuts could cost tens of thousands of jobs in private firms that work for the government.

Greece is not spitting blood yet

Those cuts were not enough for Wall Street, according to the same report:

“The equilibrium that was reached among the heads of state is sort of a natural equilibrium, which is not commit to anything because nobody gets hurt yet. Greece is not spitting blood so to speak yet,” [Gikas Hardouvelis, professor of finance at Piraeus University] said, pointing out that further decisions might come from an EU finance ministers’ meeting next week.

“We have a tough time ahead. The prime minister is right,” said Hardouvelis. “Undoubtedly Greece is being cornered, and markets are … overreacting too because of what happened in the financial crisis and we’re paying a bigger price than we actually deserve in some sense. But we do deserve to pay a price.”

Papandreou went on television to decry the lack of substantial support for other European Union members:

“Greece is not a political or an economic superpower to fight this battle alone. In the last few months of this crisis, the EU gave its political support,” Papandreou said. “But in the battle against the impressions and the psychology of the market, it was at the very least timid.”

Not only has EU support been timid, the Prime Minister asserted that the EU has helped to create the impression that a catastrophe loomed with its undecided stance and conflicting messages: One day calling for the EU to “take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole.” And, almost immediately, issuing denials from Bonn and Paris that any concrete help for Greece was implied in the statement:

A “senior EU diplomat” told the Guardian: “Germany is stepping totally on the brakes on financial assistance. On legal grounds, on constitutional grounds, and on principle.” La Croix reported that French President Nicolas Sarkozy had failed to secure an agreement from German Chancellor Angela Merkel for direct loans by eurozone countries to Greece.

Papandreou charged that Greece is being turned into “a laboratory animal in the battle between Europe and the markets.” The Prime Minister accused the EU of sending “mixed messages about our country … that have created a psychology of looming collapse which could become self-fulfilling.”

The Prime Minister also leveled the shocking charge (first reported in December by the Danish press) that the EU knew of, and concealed the fact that, the previous government had lied about the true state of the government’s finances – essential conspiring with the previous conservative government, European and American banks and possibly others to hide from the people of Greece the actual extent of the previous government’s criminal behavior. This betrayal occurred even as the banking systems of EU member nations were deeply involved in this unsustainable spending splurge:

According to Crédit Suisse figures, the UK and Ireland hold 23 percent of Greek government debt obligations, France 11 percent, while Germany, Switzerland, and Austria together hold only 9 percent. European banks collectively have made $252 billion in loans to the broader Greek economy. This includes $75 billion (€55 billion) loaned by France, $63 billion (€46 billion) by Switzerland, and $43 billion (€31 billion) by Germany … Papandreou blamed the European Commission for failing to detect or act upon the previous conservative Greek government’s “criminal record” in falsifying economic statistics. He added: “This has undermined the responsibility of European institutions with international markets.”

The Neoliberal Agenda

The International Monetary Fund published a report in the same period (July, 2009) warning that Greece was on an unsustainable path of borrowing, which would require fiscal reductions of almost 10 percent of Greece’s GDP!

In the words of the IMF:

… to remove the negative comprehensive net worth from 2009 onward would require 426/43=9.9 percent of GDP in upfront but permanent primary adjustment effective as of 2010. This is clearly impossible because it would be too large a shock for the economy, so adjustment of this magnitude needs to take place over several years.

However, the longer the government waits to adjust the comprehensive net worth gap, the more difficult it gets, because the shortfall is projected to get deeper every year. If nothing is done now and, for instance, the country waits another five years to tackle its fiscal pressures, total measures needed to close the net worth gap in 2015 would be larger than 9.9 percent of GDP. Thus, Greece should not postpone corrective steps.

Ignoring the onerous drag on economic activity generated by Greece’s chronic military overspending and service on its public debt (estimated at 400 percent of GDP) the IMF identified its own favorite “causes” of this “negative comprehensive net worth”:

  1. Employment is too low, particularly among women and children; and unemployment is too comfortable for everyone else.
  2. The minimum wage is too high.
  3. Taxes are too high.
  4. It is too difficult to hire and fire employees.
  5. Employment protection is too strict.

The IMF proposed that the financial crisis should be used as an opportunity to address these issues:

As experience in several countries shows, periods of slow or negative growth are more conducive to product and labor market reforms. This appears to be the case for a number of countries, including Ireland, the Netherlands, Canada, New Zealand, and the U.K., which reformed during “difficult times,” when the perceived cost of the “status quo” appeared higher and hence the political will to reform became relatively stronger. Greece could, therefore, use the current crisis as an opportunity to address its structural problems and boost competitiveness and growth … Greece should consider implementing broad-ranging reforms to address its structural problems and at the same time tackle the deteriorating fiscal situation and place debt on a sustainable downward path.

If this all sounds familiar, that’s because it is nothing more than the American neoliberal agenda using Greece as its test case on Europe’s southern flank. The breadth of the program explains the duplicity and vacillation of the EU over the past week. Washington, Bonn, London, and Paris aren’t looking for a balanced budget out of Greece, or even prompt payment of its obligations. They want to see blood.

George Papandreou should give them a taste of their own.

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