Euro Debt Crisis, Latvia and the PIGS

Economics / Global Debt Crisis
Mar 16, 2010 - 08:40 AM
By: Eric_Walberg

Down on the Euro Animal Farm, some animals are more equal than others.

Two million people took to the streets of Athens last week in the country's second general strike this month, protesting the austerity measures proposed by their socialist government. All of Greece came to a 24-hour standstill and the airport was closed as a result of the action. The only public transport was the commuter train so that protesters could reach the demonstration.

The crisis broke last autumn after Prime Minister George Papandreous took office and discovered the country was bankrupt. The conservative government had cheated to get into the European Union euro zone in 2001, cooking the books. What on paper -- creative accounting courtesy of Goldman Sachs -- was a budget deficit of 3 per cent and public debt 60 per cent of GDP, by 2009 had ballooned to 13 per cent and 125 per cent.

Initially, the EU tried to finesse the issue, declaring solidarity with Greece. But the financial sharks are sharpening their teeth, smelling blood. Their response to the Greek problem is naturally to rush to profit from it. Greece's "credit rating" has already been lowered, meaning any new bonds will carry a much higher price tag for the government (read: people). That of course makes it all the harder for Greece (read: the people) to actually pay the bankers. And when the country defaults, the EU will be forced to cough up in any case. Win, win for the fat cats. What EU leaders meant by solidarity was not that they were going to pour public money into Greece, as they have been pouring into their banks over the past year and a half, but that they intended to squeeze the money "owed" the banks out of the Greek people, relying on IMF oracles.

The European Parliament, the democratic facade for this, is really just the mouthpiece for the austerity seekers. Chairman of the EP Special Committee on the Economic and Financial Crisis Wolf Klinz has called for a commissar to be sent to make sure the Greeks deliver the required pound of flesh.

But who did the fiddling in the first place? The EU statistics agency Eurostat says that in 2001, Goldman Sachs secretly helped the right-wing Greek government meet EU membership criteria by masking the extent of public deficit and national debt. Once in Euroland, Greek consumers naively snapped up slick German goods and let their own industry atrophy. Now the debt trap is closing.

The traditional way out would be to devalue the drachma, in order to cut imports and stimulate exports, distributing the overall burden of adjustment to the nation as a whole -- rich and poor. But there is no drachma anymore. Bound to the euro, Greece can neither stimulate its domestic market nor export successfully. Poverty appears to be the only solution. Or, at the suggestion of Josef Schlarmann, a senior member of the German Christian Democratic Party, sell off its islands and antiquities -- presumably to rich German bankers. Greeks still resent as their brutal WWII occupiers, and this clumsy faux pas has already set off a campaign to boycott German goods.

Whatever paper is used to cover the cracks, the outlook for Greece -- and the EU -- remains grim, because France and Germany are merely adding to their own liabilities while not reducing Greece’s, and Greece will be quite unable to cut its deficit by the requisite 10 percentage points of GDP.

The very fabric of the European Union is being torn asunder as the rich members turn their backs on the poor. The iron law of capitalism -- the strong protect their own interests at the expense of the weak -- is once again being played out. Squeeze the workers. Communist propaganda, you might say, but unfortunately true.

In an ideal Europe, workers in Germany would come to the aid of workers in Greece by demanding a radical revision of economic policy, making the banks sovereign and the bankers civil servants, building a real social democracy. The reality is quite different. The Greek financial crisis exposes the absence of any real community spirit in the EU. The solidarity declared by EU members is a solidarity of businessmen.

The EU now has an ersatz ideology of internationalism, rejecting the nation state as the source of all evil, cultivating "a pompous pride in Europe as the centre of human rights, giver of moral lessons to the world, which happens to fit in perfectly with its subservience to US imperial foreign policy in the Middle East and beyond," according to Diana Johnstone, author of Fools Crusade: Yugoslavia, NATO and Western Delusions. In this cosy Euro brotherhood, Greece is portrayed as a picturesque Third World country, living the Aesopian carefree life of the cricket to the Germans' ant. The likes of Portugal, Italy / Ireland, Greece and Spain are affectionately dubbed PIGS, a chilling throwback to Orwell's Animal Farm.

But the storm clouds now gathering are not just over Greece; the entire western world is still very much in fiscal crisis. The investment bank Societe Generale recently published a frightening estimate of the real liabilities of Western governments, including off balance sheet debts. In every case the numbers, including unfunded pension fund liabilities, dwarf the official debt position. Greece is by far the worst because of what Otmar Issing, the German former chief economist of the European Central Bank, described with German tact as “one of the most luxurious pension systems in the worldâ€