Greece is a glaring example of what capitalist banks and the European Union (a truly dreadful combination) can do to an erstwhile independently minded nation.
The EU wants assurances that Greece will not default on its 402 billion euro debt to foreign creditors. Most importantly, it wants Greek workers to foot the bill with wage freezes or deep salary cuts. It is arrogantly declaring that Greece must accept an IMF-style austerity package, without any devaluation, which is an absolutely ruinous prescription, a dose of further poison. Draconian pay cuts would only deepen Greece’s economic depression with tax revenues collapsing even further.
Greece’s public debt is already 113 per cent of the country’s GDP and predicted to rise further in the next two years. Its Treasury will have to raise 56 billion euros from the bond markets this year, the peak danger period being May and June. While Greek workers are to suffer, who is destined to earn fortunes from this bond market trading?
Even in terms of past capitalist orthodoxy, Greece desperately needs to restore its currency by devaluing and then passing a law switching internal euro debt into drachmas. This would at least allow the country the possibility of breaking out of its depression-loop. However, membership of the EU and EMU prevent this – surely a spur to an increase in anti-EU attitudes.
Even though the PASOK party was only elected last autumn, the Greek government has already jettisoned its pre-election promises and agreed harsh measures to reduce the deficit, revealing the limitations of social-democratic politics in current conditions. Yet these actions still do not satisfy the EU, which wants them to go even further with multi-year freezes on public wages and VAT rises.
It is difficult to tell how far the contradiction between the interests of Greece and the EU will go. Probably the answer lies in the response of the Greek working class. Potentially at least, Greece holds the whip hand over Brussels – as a Greek exit from the EMU would be dangerous, raising the contagion of departure spreading to other nations on the periphery and puncturing the image of ever-expanding EU integration. Possibly the government will posture and then settle for yet more crippling loans, only postponing the day of reckoning.
The EU is continuing its brinkmanship. Jurgen Stark, the EU’s chief economist and German member on the European Central Bank’s inner council, has recently said that Greece’s problems are entirely “homemade” and do not meet the terms required to trigger the rescue mechanism under EU treaty law (which is limited to countries that face severe difficulties “beyond their own control”). Another German minister has said, “Germany will not take on the burden of Greek debts.”
The fear behind permanent subsidies is that other countries in a similar position, like Spain, Portugal or Ireland, might quickly join the queue. It may be that EU institutions will still conjure up a ‘rescue’ such as buying Greek bonds or certain EU states may club together to keep Greece afloat with loans or subsidies for a while. But these measures would solve nothing, as Greece’s debts would probably still increase. However, the stakes are high because if Greece is left to fail, it will provoke a euro crisis.
There is a serious fault line running through the EU. Interest rates that suited Germany were too low for Greece, Spain, Portugal and Ireland, causing all to be engulfed in a destructive property and credit-fuelled boom. EMU divergence between certain northerly countries (led by Germany) and the southerly countries has widened to the point where questions are being asked as to whether these fissures will extend further, and more eruptions of national interests break out, imperilling the basis of EU integration.