A week ago it seemed as if the Greek debt crisis finally had been solved. Suddenly everything is undecided again and no-one can quite say if the Euro survives another week. How did we get here, and how do we get out of it? This is an attempt at an explanation of what debt really means for countries in our day and age.
Europe has had one week of deadlines and “last possible offer”, yet somehow any last offer to Greece turns out not to be so “last” after-all, when yet another offer is presented. How is that possible?
The reality is that we are witnessing a gigantic game of chicken between the Greek leadership and the Euro-system. Both sides know, or should know, that if Greek really should default in an uncontrolled manner with food riots and civil war in the streets this would cause problems not just for Greece, but for the entire Eurozone and possibly the world economy, at least in the short-term.
Both sides try to act as if they are willing to just not act at all, only to push the other side to give in.
One of the instruments used in this game is the setting of deadlines by which time a certain thing “has to happen, or else…” . For example, the this week, the negotiations had to finish by Saturday, “or else…”. Then on Saturday with the plan of the referendum first presented, it was said that if there was going to be a referendum, all offers had been retracted. Today, when the referendum ad been decided upon by the Greek parliament, suddenly Schäuble announced that they would still want to help Greece. As one of the last pieces, Christine Lagarde (IMF) announced that the current offer to Greece would be invalid after Tuesday
Something tells me that on Wednesday the tune will have changed if it still hasn’t been signed on Tuesday and that the offer will somehow still be there for Greek voters to accept on July 5th.
Debt will grow exponentially, which means that at a certain stage it is impossible to pay back fully, and Greece has been at this stage for a while.
David Graeber mentions in his book “Debt: The First 5000 Years” (2011) how debt has been imposed historically on weaker people and groups, as having debt made it sound as if it was morally OK for to ask for payment from the indebted partner. The process of how this debt came into existence is not relevant anymore when payment is enforced and legitimized.
Yet somehow the German debt is not something generally assumed and portrayed by the media as being outdated and not really relevant, whereas the same is not true for the German debt. How come?
The term “Game of Chicken” sounds as if it was a fun and playful thing. The reality is that the situation is rather serious, and that the outcome will likely influence how the world economy will work in the years to come. And the “game” is not played on even terms. While for the Greek population the result may be everything form being able to being on almost-even terms with Germans and Scandinavians in terms of living-standards to turning into a sub-developed part of Europe outside of the European Union, for Merkel and IWF bosses it’s mainly a question of personal prestige.
The great secret of 21st Century capitalism
The real background for all of are two main points:
– The financial capitalist system has developed to a stage where money naturally will concentrate very quickly in the hands of very few people if property rights are enforced entirely at all times, at which stage most people will be excluded from buying just about anything. While during fordism people were still needed as workers, in the current setup, only a limited amount of people are needed as workers.
– The capitalist system we currently have is based on every participant thinking before every decision that the debts they make will be real and that the money they accumulate will be real as well. In short: There must be an idea that property rights are enforced at all times, if not for the entire system, then at least for themselves.
The two points together mean that politics constantly has to cancel out debts and not recognizing accumulated wealth. At the same time, it has to be done in a way that makes the participants think that the second point is still true. It basically means that some debts are enforced, whereas others are not. The decision of which ones are still enforced is entirely political: peripheral countries generally have to pay (unless there is a debt relief program which officially removes the debt), whereas more center countries do not.
A good example is Nicaragua where the Sandinistas in 1979 were forced to accept the country’s debt after taking power, even though a large part of the debt was accumulated by the country’s former dictator buying weapons to fight the Sandinista revolution. When in the 1986 on the other hand the International Court of Justice decided that the US had to pay reparations for illegally financing a war against Sandinista Nicaragua
, there was no crisis in the US over repaying it, nor did it ever happen as the US could block executing it both through their position ion the UN Security Council as well as through the help of local allies in Nicaragua.
Who is the center?
What then decides what countries are in the center? Weapon power is of course an important argument. The US is at the center because they can enforce their will militarily.
But could Germany really enforce their will militarily against Greece, both of them being NATO-members and part of the same currency zone? Clearly the circumstances make the situation somewhat more complex. At least a side factor seems to be who can capture most of the public to believe in a specific “reality” about which debt is real and which one isn’t.
In line with that, North European media, state and private, have been on a type of crusade against Greece and everything Greek lately. The message is clearly: “This debt is real and morally correct”. Possibly it is also to communicate that whatever happens to Greece, is unique to Greece and no-one should even think this may happen somewhere else. If then in ten years it does happen again, this time with Spain or Portugal, again they will need to communicate that it is unique to one country and will not ever happen again somewhere else.
Is such propaganda needed? In a sense yes, at least if one wants to maintain the capitalist economic system. Just imagine how would people act if they thought there was a chance that they could make a debt which then would be canceled. Or what would they do if they thought there was a chance that their country could be thrown out of the Euro-zone within a few years? If people are to think in terms of profit-maximization, and they think that one these two scenarios could apply to them personally, they would likely act in a way that would be counter-productive to the system as a whole.
But the propaganda could also focus on the German debt to Greece equally and thereby give an explanation why and how the Greek debt has to disappear, or be canceled out, without giving anyone ideas that their own debt could canceled as well.
What should happen if the Eurozone is to survive?
Capitalism is constantly destroying itself, but there are ways of intervening to at least counteract the process a bit, at the very least slowing it down. As the most basic principle of having a common currency, there need to be mechanisms to pump money into the weaker parts of the system constantly. All countries with one currency have implemented such a mechanism in some way, and the Eurozone also needs it. The best and brightest Greeks will go to live and work in Berlin, Paris and London after Greece has paid an entire education for them. There then needs to be a process in place to make sure money from those centers will be sent back out into peripheral countries such as Greece.
It is likely true that there has been a fair bit of tax fraud in Greece in recent years, and a lot of that has been an informal way of pumping some money back out into the periphery, or at least keeping it there longer. But it is unorganized and it is not guaranteeing proper distribution of that money. Enforcing proper taxation at levels similar to other European countries is therefore a good idea, but only if simultaneously a mechanism is established that pumps money from the center into the European periphery — constantly. Not as a debt that is given out once, but as something weaker regions are entitled to.
Several of the points in the IWF’s proposal seem to target killing the Greek economy entirely, but there are also some points that make sense. For example, Greek is still scheduled to spend €3.25 Billion on the military and €700 million in procurements in 2015
. The Syriza proposal cut this figure by 200 million, but the IWF cut it by 400 million. In terms of improving living conditions, armies are generally a total waste of resources. And if it is meant for defense against the rest of the Euro-group, those countries are also largely members of NATO, as is Greece’s arch enemy Turkey. I have not heard any good explanation for why this figure cannot be lowered even more or why Syria’s proposal falls short of the IWF proposal.
So a few of the IWF-proposals, a working tax system, but also cutting debts and a European fiscal union that pumps money from wealthy into poorer regions constantly could possibly still save a Euro and a European Union in a way that helps the entire continent.
What will really happen?
At this stage it is difficult to say. Clearly the Eurogroup tries to remove Syriza from power in some way and they will likely continue to make deadlines, then somehow better conditions to the Greek voters than what had been offered to the Greek government, yet still blame Tsipras and try to force him out of office after the vote. They may also secretly have planned to kick Greece out of the Eurozone and were just waiting for an opportunity to do so. Or they just played the game a bit too much.
Either way, it is difficult to understand what kind of level these people are operating at. Are Schäuble and Merkel geniuses with a master plan that none of us can understand quite yet? Or are they just governed by extremely short-sighted special interest and don’t really think much further than to their own retirement?