11) REPLACING ECONOMIC DEMOCRACY WITH FINANCIAL OLIGARCHY
By Michael Hudson, Information Clearing House (abridged)
Soon after the Socialist Party won Greece's national elections in autumn 2009, it became apparent that the government's finances were in a shambles. In May 2010, French President Nicolas Sarkozy took the lead in rounding up 120 billion Euros (US$180 billion) from European governments to subsidise Greece's unprogressive tax system that had led its government into debt - which Wall Street banks had helped conceal with Enron‑style accounting.
The tax system operated as a siphon collecting revenue to pay the German and French banks that were buying government bonds (at rising interest risk premiums). The bankers are now moving to make this role formal, an official condition for rolling over Greek bonds as they come due, and extend maturities on the short‑term financial string that Greece is now operating under. Existing bondholders are to reap a windfall if this plan succeeds. Moody's lowered Greece's credit rating to junk status on June 1 (to C1, down from B1, which was already pretty low), estimating a 50/50 likelihood of default. The downgrade serves to tighten the screws yet further on the Greek government. Regardless of what European officials do, Moody's noted, "The increased likelihood that Greece's supporters (the IMF, ECB and the EU Commission, together known as the "Troika") will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support."
The conditionality for the new "reformed" loan package is that Greece must initiate a class war by raising its taxes, lowering its social spending - and even private‑sector pensions - and sell off public land, tourist sites, islands, ports, water and sewer facilities. This will raise the cost of living and doing business, eroding the nation's already limited export competitiveness. The bankers sanctimoniously depict this as a "rescue" of Greek finances.
What really were rescued a year ago, in May 2010, were the French banks that held 31 billion euros of Greek bonds, German banks with 23 billion euros, and other foreign investors. The problem was how to get the Greeks to go along. Newly elected Prime Minister George Papandreou's Socialists seemed able to deliver their constituency along similar lines to what neoliberal Social Democrat and Labor parties throughout Europe had followed - privatising basic infrastructure and pledging future revenue to pay the bankers.
The opportunity never had been better for pulling the financial string to grab property and tighten the fiscal screws. Bankers for their part were eager to make loans to finance buyouts of public gambling, telephones, ports and transport or similar monopoly opportunities. And for Greece's own wealthier classes, the EU loan package would enable the country to remain within the Eurozone long enough to permit them to move their money out of the country before the point arrived at which Greece would be forced to replace the euro with the drachma and devalue it. Until such a switch to a sinking currency occurred, Greece was to follow Baltic and Irish policy of "internal devaluation," that is, wage deflation and government spending cutbacks (except for payments to the financial sector) to lower employment and hence wage levels.
What actually is devalued in austerity programs or currency depreciation is the price of labor. That is the main domestic cost, inasmuch as there is a common world price for fuels and minerals, consumer goods, food and even credit. If wages cannot be reduced by "internal devaluation" (unemployment starting with the public sector, leading to falling wages), currency depreciation will do the trick in the end. This is how the Europe's war of creditors against debtor countries turns into a class war. But to impose such neoliberal reform, foreign pressure is necessary to bypass domestic, democratically elected Parliaments. Not every country's voters can be expected to be as passive in acting against their own interests as those of Latvia and Ireland.
Most of the Greek population recognises just what has been happening as this scenario has unfolded over the past year. "Papandreou himself has admitted we had no say in the economic measures thrust upon us," said Manolis Glezos on the left. "They were decided by the EU and IMF. We are now under foreign supervision and that raises questions about our economic, military and political independence."
On the right wing of the political spectrum, conservative leader Antonis Samaras said on May 27 as negotiations with the European troika escalated: "We don't agree with a policy that kills the economy and destroys society... There is only one way out for Greece, the renegotiation of the [EU/IMF] bailout deal."
But the EU creditors upped the ante: To refuse the deal, they threatened, would result in a withdrawal of funds causing a bank collapse and economic anarchy.
The Greeks refused to surrender quietly. Strikes spread from the public‑sector unions to become a nationwide "I won't pay" movement as Greeks refused to pay road tolls or other public access charges. Police and other collectors did not try to enforce collections. The emerging populist consensus prompted Luxembourg's Prime Minister Jean‑Claude Juncker to make a similar threat to that which Britain's Gordon Brown had made to Iceland: If Greece would not knuckle under to European finance ministers, they would block IMF release of its scheduled June tranche of its loan package. This would block the government from paying foreign bankers and the vulture funds that have been buying up Greek debt at a deepening discount.
To many Greeks, this is a threat by finance ministers to shoot themselves in the foot. If there is no money to pay, foreign bondholders will suffer - as long as Greece puts its own economy first. But that is a big "if." Papandreou emulated Iceland's Social Democratic Sigurdardottir in urging a "consensus" to obey EU finance ministers. At issue is whether Greece, Ireland, Spain, Portugal and the rest of Europe will roll back democratic reform and move toward financial oligarchy. The financial objective is to bypass parliament by demanding a "consensus" to put foreign creditors first, above the economy at large. Parliaments are being asked to relinquish their policy‑making power. The very definition of a "free market" has now become centralised planning - in the hands of central bankers. This is the new road to serfdom that financialised "free markets" are leading to: markets free for privatisers to charge monopoly prices for basic services "free" of price regulation and anti‑trust regulation, "free" of limits on credit to protect debtors, and above all free of interference from elected parliaments. Prying natural monopolies in transportation, communications, lotteries and the land itself away from the public domain is called the alternative to serfdom, not the road to debt peonage and a financialised neofeudalism that looms as the new future reality. Such is the upside‑down economic philosophy of our age.
Concentration of financial power in non‑democratic hands is inherent in the way that Europe centralised planning in financial hands was achieved in the first place. The European Central Bank has no elected government behind it that can levy taxes. The EU constitution prevents the ECB from bailing out governments. Indeed, the IMF Articles of Agreement also block it from giving domestic fiscal support for budget deficits.
The moral is that when it comes to bailing out bankers, rules are ignored - in order to serve the "higher justice" of saving banks and their high‑finance counterparties from taking a loss. This is quite a contrast compared to IMF policy toward labour and "taxpayers." The class war is back in business - with a vengeance, and bankers are the winners this time around.
...Greece and Ireland have become the litmus test for whether economies will be sacrificed in attempts to pay debts that cannot be paid. An interregnum is threatened during which the road to default and permanent austerity will carve out more and more land and public enterprises from the public domain, divert more and more consumer income to pay debt service and taxes for governments to pay bondholders, and more business income to pay the bankers.
If this is not war, what is?
(The above article is from the July 1-31, 2011, issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $30/year, or $15 low income rate; for U.S. readers - $45 US per year; other overseas readers - $45 US or $50 CDN per year. Send to People's Voice, c/o PV Business Manager, 706 Clark Drive, Vancouver, BC, V5L 3J1.)