This is a chapter from the book:
The Case of Greece
Remarks on the National Bankruptcy of Greece
The bankruptcy of Greece in 2010 is, as far as the country itself is concerned, the price it is paying for joining the European Union, including the Monetary Union, and for meeting the resulting demands on its national economy.
Like every member of the European Economic Union, Greece joined this club with great expectations for the progress of its own nation. It speculated that by joining the “single market,” it would foster its own economy, gain access to the big European markets, and conversely would itself be considered an interesting sphere of investment by well-funded financiers. It counted on more being made out of its own economic inventory — state enterprises, shipping companies, agriculture — and especially that the country would be supplied with the capital it badly needed for the intended “modernization” once the political barriers to competition between business locations had fallen away. The aid promised by the Union for preparing the location seemed only to confirm its expectations, since the leading operators of the European Economic Union were officially acknowledging that the local economy first of all had to be made competitive for their Union; hence means from the “Cohesion Funds,” “Structural Funds,” and so forth would be made available for the country to compensate for its “backwardness.”
This is how the EU modernized its member, Greece, with a regular flow of money. Unprofitable state enterprises were privatized; roads, bridges, and airports were built; further development funds were used for measures to increase productivity in agriculture. There was no lack in infrastructure for capitalistic growth in the country — only that growth itself did not come about in the way expected by the political managers of the Greek business location. Local production could not weather free competition with the financially powerful companies from Europe’s model states with their global corporations and potent Mittelstand (mid-sized) firms; exceptions prove the rule. After all, the companies that set the standard for productivity and profitability within the Union and beyond its borders were planning anything other than remedying the lack of capital that their Greek competitors suffered from: instead, they ruthlessly exploited it to their own advantage and, with their superior capital size, conquered the market being opened up to them. As far as agriculture is concerned — the second hope the Greek state based its calculations for success on — Greek farmers, too, did not bear comparison with financially stronger competitors from Spain and Italy, who used the aid from the European Union only to increase their lead in productively exploiting people and nature. And then, on top of all this, the war in the Balkans dashed all of Greece’s expectations of capitalistically opening up and utilizing new markets next door. So as a member of the EU, the state continued to administer the lack of capital its business location was struggling with. Apart from the money that merchant shipping and the tourism business brought into the country, the state itself was the only economic agent of any importance, acting as employer, customer, and distributor of subsidies, and thus advancing to the position of being its citizens’ most important source of income.
Nor did Greece resist the next offer it was given for continuing its career as a member of the European Union. Joining the European Monetary Union meant giving up the sovereign handling of that material whose accumulation is all that matters in a national economy, and thereby also giving up many a liberty that a state takes as the creator and guarantor of its society’s money when arranging its budgetary and debt policy. But in return for its commitment to meet certain criteria that its national budget had to submit to in support of the supranational ambition to ensure the stability of the new money, there was a prospect: once all the sovereigns invited to join the Union subjected their debt and business-location policies to this stability-based common ambition and put up with the control regime of a European Central Bank when managing their business locations, they would all have the same stable and therefore good money to operate with. This program also won over those in charge of the national budget in Greece. All at once, they were not only to be rid of all their problems with a notoriously weak currency, which, though performing all monetary functions domestically, was continuously losing value in the process, and in comparison to other currencies as well. Above all, the euro also gave them direct access to a sphere of business in which drachmas had played an extremely marginal role: as a euro location, Greece would become just as interesting for the business of the big European financial capitalists as all the others were. If they found business in euros to be worthwhile, the Greek tip of the eurozone would also become a business sphere for banks and money traders, and capital would come into the country.
At any rate, the Greek state put all its hopes on joining the eurozone, accepting the imposed measures to limit its inflation rate, budget deficit, and debt level as a means to achieve the desired effect of being able to utilize the EU’s capital market as a source of finance for its own capitalistic progress. And in one respect it was not disappointed: Greek national debt, too, now enjoyed the credit guaranteed by the pan-European economic area; in this country, too, domestic banks grew and foreign ones opened branches, making money on all the financial transactions going on in this business site. A boom in the financial sector was the first important item to be reflected in Greek growth figures. A second was registered in the category of services, which was opened up to foreign investors after a wave of privatizations and the successful sale of ports, telephone companies, refineries, shipyards, casinos, and coastal strips. But apart from that, there was still nothing doing when it came to growth in the productive sector of the economy. Even under the euro regime, Greece failed to develop into an attractive investment sphere for foreign capital to run its business from and thereby strengthen the economic basis of the state’s money dealings. Instead, the big European retail chains just used the increased consumer demand to do what their line of business demands: they exploited it for themselves with their unbeatably cheap offers and put an end to whatever was left of traditional small companies and traders.
After a decade of the euro economy in Greece, the head of the central bank took stock of the advantages the country had gotten from its membership in the Monetary Union by enumerating the disadvantages it should expect from an exit from this Union. According to him, the euro saved Greece from dire consequences:
“Any devaluation of the new [domestic] currency would increase the costs of imports, raising inflation. Monetary policy would lack the credibility established by the European Central Bank. As a result, inflation expectations would rise. Expectations of further devaluations would arise, increasing both currency-risk and country-risk premiums. The above factors would push up nominal interest rates, leading to higher costs of servicing the public debt and undermining fiscal adjustment, thereby taking resources away from other, productive areas… Existing euro-denominated debt would become foreign-currency debt. Any devaluation of the new domestic currency against the euro would increase the debt burden.” (George Provopoulos, quoted by the Financial Times, London, Jan. 22, 2010)
These listed advantages of a continuing membership in the euro club were symptoms of the uncompetitiveness of the Greek national economy. If, with the alternative of its own, new credit-money based solely on its national economic clout, the only questions of importance would be (1) what devaluation rates would be expected of it in comparison with the euro currently used as national currency, (2) how much more interest would have to be paid to help a new drachma achieve any exchange rate at all, and (3) what disproportionate amount of such money would have to be spent to allow the nation to buy the imports it lives on — then the country was definitely not experiencing any accumulation of capitalistic wealth that provided the people with a livelihood through their exploitation and supplied the nation with international purchasing power. If a higher interest burden for the budget would threaten to take away indispensable “resources” for capitalistically productive business areas, then such productive sectors existed only as state projects — in other words, not at all. If the transition to its own currency would make the nation’s euro-denominated debt burden increase immeasurably, then the country had long since got itself into a level of debt that its economic power was definitely not up to. The entire result of years-long participation in the single market and the Monetary Union was a heap of credit that the country would never have been able to afford with its old drachma but was able to afford as a recognized euro debtor — and that the national capitalism the country had managed to finance with it could in no way justify.
Yet this disproportion alone is not the reason why the Greek debt mountain has now been found to be unsustainable.
The bankruptcy of Greece is, in terms of the current reason for it and its imperialistic importance, the first price the eurozone states have to pay the financial sector for the expense of rescuing it, and a first “oath of disclosure” regarding the unresolvable contradiction of the Monetary Union and its money.
In the wake of the financial crisis, the leading European nations suspended the code of budgetary discipline that the eurozone states committed themselves to in a special Stability Pact for maintaining the quality of their money. Not formally or officially, of course, nor by any accounting tricks, as the Greeks were being accused of, but plainly and simply in practice. Their banking and financial system is so “systemically essential” to them, and rescuing it seemed so unconditionally necessary, that, for them, all the finely balanced relationships intended to guarantee the soundness of both their old and their newly issued debts simply did not apply when it came to the funds they showered on banks to let them continue business. Even if it was sometimes only guarantees that the states provided, and even if the sale of some cheaply acquired blocks of shares would “put money back into the public purse,” vast amounts of euros had already flowed into the ailing sector’s bailout. How much would still be needed for the same purpose in the near future was unknown, and was consequently the next object of the gravest concerns in terms of stability policy; added to that was the fact that the expensive stimulus packages for the “real economy,” caught in the crunch together with the financial sector, did not produce the desired effects. It was not only the European Central Bank and its various national branches that began expressing grave fears for “the future of the euro,” and not only the business editors at newspapers who were speculating about when to expect the first wave of inflation and how big it would be. It was first and foremost the traders themselves, those who were being rescued at such expense, who started to recalculate on the basis of these data the risks of the business they wanted to make money on, and were absolutely required to for furthering the market economy–based common good. And their calculations are the crucial ones: how they gross up their investments in euros in comparison to other speculatively assessed risks and compare these to projected returns, and how, on the basis of their speculative calculations, they end up deciding whether and to what degree — which they can even quantify with “risk premiums” — they are willing to continue trusting the stability of the supranational money: all this is what determines the answer to the anxious question about the money’s future in practice. And a small partial answer was currently on its way: the fact that Greece’s national debt was being critically assessed to the point of forcing the country to declare bankruptcy was the first manifestation of the enormous masses of credit the big euro states were creating for rescuing the financial sector, and their money, being speculatively examined by this very financial sector.
The finance industry constantly tests its confidence in the sustainability of the euro credit bloated by the states, and does so in suitably discriminating fashion, just as the construction of the common currency dictates. It assesses the national debts — which are all denominated in equally hard euros and therefore recognized by the European Central Bank (ECB) — according to the ability of the state issuers to vouch for them solely with the means of their own national economies, without any financial equalization from their competing partners. The assessment of this ability of the eurozone states to meet their financial obligations, and of the risks that might stand in their way or could arise in the future, is done by rating agencies. Professional methodologists of the speculating trade know how to weight the relevant data and indicators by all the rules of the profession that makes a profit from trading risks. They publish the results of their meta-speculation in the form of telling strings of letters, and, in an instant, the practitioners know the current creditworthiness of the debtor whose papers they hold in their hands: if it is worse now than last time, then the risks are higher and the debt certificates worth less, and vice versa.
In the case of Greece, two of these institutions decided to reassess — downward — everything they previously assessed as proof of a high-quality debtor, including the capitalization of future, regular income from the lottery, motorway tolls, airport fees, and the like. The reason is not at all that the country excessively bloated its state credit to bail out its banks; according to experts, Greece’s banks were exceptionally healthy, whatever that may mean in this business world; at any rate they were not as affected by the financial crisis as their big competitors in the rest of Europe. What proved to be the country’s undoing was the indicator of the proportion between already accumulated and newly issued debts, on the one hand, and capitalistic growth, which must ultimately justify the mountain of debt, on the other: this disproportion was significantly higher in Greece than in the rest of the eurozone; this accordingly increased the “residual risk under adverse economic conditions” (Standard & Poor’s) — and all of a sudden this state had its financial crisis.
The crisis affected the state as a creator of fictitious capital (debts functioning as assets of the financial sector) in that it not only had to pay its creditors more than before for their diminished confidence in its capacity to pay back its bonds at a guaranteed high yield; it was also questionable whether the minister of finance would even succeed at rescheduling the debts — discharging the due loans with new government bonds — that was soon to be necessary. For this required the cooperation of the creditors, who now seriously doubted whether Greek euro-denominated securities were still a good deal.
Financial companies primarily from the capital-rich EU partner countries that until recently had been investing remarkable sums (in the billions) in the Greek budget, and the capital markets in general, which were soon supposed to take up Greece’s new bonds, faced a difficult decision. Should they again bet billions on the issuer’s solvency despite all their well-founded doubts, thereby permitting the old loans to be replaced by new and bigger ones? Or should they refuse to deal with government debt in this usual way and thereby bring about the insolvency of the Greek state, at the same time revealing the worthlessness of the corresponding bonds, an important item in their portfolios? This choice was not only crucial for the livelihood of many creditors; the amounts to be either maintained or deleted were so big that the matter was rather “systemically relevant” again. But what made the Greek financial crisis really “relevant” was that it affected the euro club as a whole and its money in general.
The source of this money is, after all, credit operations throughout the eurozone — not least the business in government debt. Its soundness, the stability of the fictitious capital the sovereign powers answer for, is the crucial basis for the financial markets’ esteem of the credit money put into circulation as finance capital, and thus for its rank in the competition of currencies. A decisive part in this is played by the European Central Bank: by guaranteeing the redemption of government bonds, the ECB certifies and vouches for the quality of government debt, i.e., for its status as a sure source of liquidity, and at the same time for the quality of the money that it issues and that financial dealers use for their business, i.e., for this money being justified by sound fictitious capital, by its role as the material and the result of successful finance-capitalistic growth.
The speculation against Greek bonds — officially confirmed and thereby all the more fueled by a lower rating on the part of the authorized agencies — now required the ECB to make a truly “systemically relevant” decision. Should it unblinkingly adhere to recognizing the now doubtful Greek bonds as a source of euros? In practical terms this would mean prolonging the reduction of its quality requirements for redeemable government bonds to a lower rating beyond the scheduled date at the end of 2010, a measure it introduced to make it easier for the EU powers occupied with bailing out their financial sector to finance their “exploding” debt, and from which especially Greece is now profiting with its downgraded debt. Or should it withdraw its recognition of this fictitious capital as a source of liquidity, thereby virtually removing the basis for both the speculation and the Greek budget? In the first case, it would run the risk of the financial world’s critical judgment of Greece’s debt turning against the good euro, with which it redeems such dubious bonds; all the more since it was already altogether questionable how good the money still was, when the big euro powers were using it in such enormous amounts merely to avoid a financial crisis and in no way to finance a corresponding increase in growth. At best, Greece would continue to have credit, while in the worst case the European Central Bank would lose its own credit with the financial markets that were supposed to make use of its commodity, namely, the euro. If it instead decided to no longer recognize Greek government bonds, then the central bank was risking the state's insolvency, with all the consequences for the financial capital assets based on this state. This would mean proving how serious it is about the creditworthiness of the government authorities whose credit instruments it guarantees to redeem, but it would also be watering down this guarantee by making it dependent on the judgment of the financial world in the form of the acknowledged rating agencies, and thus devaluing it in a pretty fundamental way.
This predicament presented itself to the club of euro states as a most unfortunate choice indeed. They could either grant Greece the credit it was losing with the business world, thereby saving the state from bankruptcy — and violating not only (continually and more severely) the restrictive regulations of the Maastricht stability pact intended to ensure the euro’s stability, but also the basic rule of the Monetary Union, namely, the preservation of its members’ fiscal sovereignty, including the consequence that no country may be held liable for the debt of another, each one being responsible for its creation of credit, so that anything resembling a financial equalization between participants is ruled out. Or they could practice and demonstrate uncompromising loyalty to the principles that determined the solidity of the common currency and the autonomy of national budgetary policy, the core of national sovereignty; the partners could leave Greece to its financial crisis — thereby not only risking a destruction of fictitious capital, which would once again endanger their entire credit system, but also risking Greece’s bankruptcy and thus the paralysis of political rule over part of the Union’s territory.
That the second choice was out of the question was basically clear; but it was equally unclear how to realize the first one without dissolving the foundation of the monetary club. And with this dilemma, the incurable contradiction that characterizes the EU in general and its common currency in particular took effect quite acutely.
- In the EU, sovereign states manage a Single European Market, i.e., a cross-border competition of capitalistic companies in which those strongest by strictly market-economy criteria are meant to prevail, unhindered by special national conditions. With their successes and the defeats they inflict on weaker competitors, the victorious companies shape the economic map of the Union. At the same time, each state, with its autonomous means, manages this pan-European free-for-all to the benefit of its national business location and the revenues it draws from it. The fact that some parts of the EU budget are dedicated to the aim of equalizing national and regional disadvantages of the various business locations does not abolish this contradiction between transnational competition and national economic accounts; instead, the Union thereby ends up supporting the brutal sorting of the continent into successful and unsuccessful locations for capital brought about by unleashed, competitive activity.
- Following the same pattern, the euro partners manage not only the transnational competition of capital, but also a common credit-money. They are all liable for it — formally all in equal measure — with their debt and the growth they use it for bringing about in their own jurisdictions. In terms of growth, each eurozone state does what it can to make its business location capitalistically lucrative — and in so doing they all contest each other’s yield from the accumulation of capital in their big pan-euroland, while needing this yield to vouch for their debt and the common money. With their competition against each other, they reduce to the point of absurdity the premise on which their common credit-money is based, namely, that each nation guarantee the stability of this money on an equal footing with all the others and with an equivalent ratio of debt to growth.
The common financial crisis put this fiction severely to the test, since the financial sector was subjecting the unproductively expanded euro credit in toto to stricter speculative scrutiny, and testing the reliability of its national sources. The speculators zeroed in on Greece. And that they were thereby exposing the contradictory nature of the entire construction was de facto admitted by the leading euro politicians when they openly expressed their fear that allowing one member to go bankrupt would inevitably lead to the bankruptcy of a few other candidates down the line. For all that meant was that as a result of their years-long competitive efforts, plenty of members had lost the ability to underpin the jointly used credit-money with their own credit.
In order to ensure the continued existence and functioning of the euro system, the leading powers of the Union deny with might and main the politico-economic substance of the Greek financial crisis. It is necessary to convince “the markets” that Greece’s bankruptcy is an isolated lapse and can be cleared up by better budget policy. The Greeks are assigned the impossible task of making their state creditworthy again through pauperization.
With the danger of having to admit to the complete failure of the common credit-money, it was already clear to the leading powers of the Union what direction their efforts to cope with the situation had to take. They resolutely insisted that it was Greece that was failing, and attached the greatest importance to proving that this was solely due to the negligence in matters of budget management that Athens was guilty of. This had to be only a special, exceptional case, which had absolutely nothing to do with any defeats in intra-European competition that of course not only Greece suffered from; nothing less than the basic lie of the Monetary Union was at stake. So for the moment, it was certain what was needed for rescuing the member about to go bankrupt: Greece had to demonstrate, and convince “the markets” once and for all, that it was willing to immediately stop making any mistakes in its accounting and budget management and to do everything as correctly as was stipulated when the common currency was founded. In the eyes of the leading politicians of the Union, the promise to maintain stability when deploying debt or face penalties had functioned, until Greece went down, as a credible substitute for a guarantee power behind the euro credit, and as proof that the euro had an indisputably sound basis in the credit-financed growth of the partner countries and therefore also in their securities. Hence a credible reenactment of the stability guarantee that had given the euro its decade-long successful course should again be able to eliminate all the mistrust in the quality of the money that was showing itself on “the markets.” Those in charge proceeded to make sure that “the markets” received the appropriate signal: the Greek government was virtually placed under EU supervision, obligated to pass laws to restructure its budget, and checked for punctual implementation and compliance. “Budget discipline” and “austerity” were the maxims dictated to the Greek national leadership “in order to safeguard the financial stability of the eurozone as a whole” (statement of the EU Council, February 11, 2010).
The solution the EU was aiming at here was fairly paradoxical: Greece was supposed to become capable of answering for the debts that it was admittedly not up to, and of reliably vouching for each euro of fictitious capital it issued; and the way to achieve this was, of all things, to slash its budget, i.e., to deprive the nation’s economic life of everything the state had used until now to promote business and capital growth of a kind. It was deprived of the freedom to make any corrections to the inadequate competitiveness of its national economy and to mobilize funds for that purpose; the country’s business life was being programmed to shrink according to the state’s budgetary stance; this, of all things, was supposed to fix the disproportion between the financial capacity of the nation’s business location and the total, accumulated debt of the state, and not only in some brighter future but so that the entire accumulated heap of long since irredeemable loans maintain their value up to the last euro, or as the case may be, regain their value against the mistrust of the markets — not by growth, but by the decimation of public borrowing.
This was absurd. But what mattered to the EU for the moment was not so much to tally successes, but rather to credibly demonstrate the absolutely uncompromising will of the Union to subject Greece to a pretty brutal restructuring plan in order to thereby scotch all speculation against the euro. However, this included a second clear signal to the speculator community, namely, that the Union would not let the basis for its credit-money be ruined by pure speculation driving one of its members to bankruptcy. This guarantee for the survival of Greece’s debt-heavy budget of course had to be again shaped in such a way that nobody would doubt the unshakeability of the clause whereby each country must ensure stability at its own expense, and there will be no bailout; otherwise the eurozone states’ debt economy would immediately be suspected again of being unsound and the euro put in danger. The risk of disclosing the unsustainability of the euro construction, which Greek debt had made imminent, had to be cleared up by way of example in Greece; through a “drastic cure” whose exemplary harshness would convince financial markets that when the partners did inevitably rescue Greece’s credit sometime and somehow, this would not affect the stability of the euro.
The practical implementation of this complex program for warding off all anti-euro speculation prompted by Greece turned out to be as banal as it was brutal. Everything the country and its inhabitants had previously used for survival in this state was to be sacrificed in order to give government debt the semblance of unequivocal sustainability and thus avert damage to the common credit-money.
The Greek government now had to prove itself up to this task, and many doubts were raised as to whether it would succeed. Not as far as its will was concerned: the government in Athens made it quite clear that everything it had to do in the overriding interest of the EU was also in its own interest. But there were worries about the people. While adapting to the characteristic poverty of the county, they had not simply put up with every demand their rulers made on them, even long before going bust and quite without an express command from the EU. Greece was said to have strong trade unions, which could pull off a general strike bringing the country to a standstill for a few days; even communists — just imagine! — still made trouble there. And a lot of people, in no small part led by leftists, protested against the speculators and EU politicians blackmailing the country.
But the truth is:
First of all, this country laid itself open to “blackmail” of its own accord. The state took advantage of the speculation on its euro debts for financing its budget; it banked on the power of the EU as a means for new economic and political clout. With its nationalistic perception of Europe as an opportunity for national advancement, Greece made itself dependent on those it now thought were treating it so badly.
Secondly, the state let itself be “blackmailed” because its officials, now more than ever, considered their national opportunity to lie in just that, in the dictates of the EU’s austerity commissioners which were supposed to rescue its credit; and in the financial markets, whose actors were demonstrating what stuff they were made of. Speculators would rather risk the ruin of their own business basis than pass up a business opportunity — because they assume, and can quite rightly assume, that the governments they speculate on would sooner decimate their people’s means of survival than allow a threat to the business basis of finance capital.
Thirdly, a modern democratic state lets itself be “blackmailed” by all interests to which it concedes the status of objective constraints, i.e., which the state itself makes into objective constraints; but definitely not by its people. One main reason for this is that the last thing citizens are out to do is blackmail their rulers — much less with the unscrupulousness shown by the true beneficiaries of true sovereign nationalism. This also applies to the protesting Greeks: it would never cross their minds to stop serving as the basis for their own government. On the contrary, they protest for their nation, which has made itself so nicely dependent on the EU and euro speculation. They place a big equal sign between the country’s current plight and the distress the government increasingly holds out for its people: whether pensioners, day laborers, or government leaders, they should all stand together as Greeks against the foreign blackmailers. This kind of popular protest is nothing but a patriotic notice of readiness: if it serves the common good, we are ready for any sacrifice.
So all those in charge need to do is couch the programmed emergency and pauperization measures in the right terms for their people.
The German people apparently don't need much couching in right terms from their authorities. A few diatribes against Mediterranean laziness from the free-thinking spokesmen of the country’s democratic public, and their audience is already taking sides. In point of fact, they are for the cause of their bosses, the business leaders, speculators, politicians, and EU rulers; in their minds, they are against “the Greeks,” who do not deserve anything better than proper impoverishment. With this brand of combined nastiness and ignorance, a worthy people is evidently better equipped to endure everything their bosses do with them to keep things from getting to the point they reached in Greece.