Karl Heinz Roth is an historian (Ph.D.) and physician (M.D.). He has authored numerous publications in social, economic and science history. He lives in Bremen (Germany).

Greece and the Eurozone Crisis: What is to be done?

A Pamphlet

By Karl Heinz Roth

John Hunt Publishing Ltd.

Copyright © 2012 Karl Heinz Roth
All rights reserved.
ISBN: 978-1-78099-824-4

Contents

Before the Greek Debt Crisis………………………………………..1In the Vortex of the World Economic Crisis……………………………9Greece Under De Facto Forced Administration…………………………..12The Papadimos Interim Government and the Radicalization of the Troika’s
Austerity Course…………………………………………………..20The Fourth Austerity Program of 12 February 2012………………………27The Negotiations with Private Creditors………………………………32By Order of the Financial Corporations: The Implementation of the
Troika-Diktat until March of 2012……………………………………36Greek Society on the Brink………………………………………….42Interim Conclusion: The Consequences of the Austerity Policies………….48The Monster of Instrumental Reason…………………………………..50Deflation and Inflation: A Collective Exploitation Squeeze……………..54A Largely Fictitious Debt Cut……………………………………….62A Mockery of Democracy……………………………………………..65German Rigor and German History……………………………………..74The Problem of an Alternative……………………………………….83System-Inherent Approaches………………………………………….83What is to be Done? Perspectives from Below…………………………..86Time to Act……………………………………………………….91Greece in the Crisis: Basic Macro-Economic Data……………………….92

Excerpt

CHAPTER 1

Before the Greek Debt Crisis

In the spring of 2012, the euro crisis intensified dramatically. Theepicenter of the crisis is Greece, a country that has been experiencinga severe recession since the beginning of the worldeconomic crisis. What outcome this recession will yield is adecisive question not just for Greece, but for all of Europe andindeed for the entire world economy. We need therefore toconsider the story behind this crisis, and the restructuringprograms imposed, since May of 2010, by the so-called “troika”(the European Commission, the European Central Bank and theInternational Monetary Fund). We also need to consider possiblealternatives to these restructuring programs.

In 1981, Greece became a member of the EuropeanCommunity. A spirit of optimism prevailed in the country. TheSocialist Party (PASOK), an offshoot of the Pan-HellenicResistance Movement against the 1967–1974 military dictatorship,had won the parliamentary elections for the first time.Due to its welfare-oriented platform, PASOK enjoyedwidespread popular support.

As the conservative Karamanlis government stepped down,there began an era of social, cultural, scholarly and economicprogress. This trend was in no way affected by the monetaryrestrictions associated with the European Monetary System thathad been introduced within the European Community in 1979.Greece was not to join this system until 1993. Like the currenciesof the other new southern European member states (Portugaland Spain), the drachma was kept outside the currencyagreement. While the intra-European disparities in economicdevelopment entailed certain distortions of competition, theGreek government was able to compensate for their effects byperiodically devaluing the Greek currency. Thus there was littlepressure to reconfigure Greek economic policy on the model ofthe European Community’s core states. Between 1979 and 1992,the drachma was depreciated by 86 percent. In this way, theprices of Greek exports to the European Community’s core stateswere lowered almost by half. Conversely, the prices of WestGerman and French exports to Greece were increased almost byhalf.

This monetary and economic approach, favorable to Greeceand the other countries of the European periphery, becameunviable in 1992. Responding to the pressures engendered by thecrisis-ridden development of their own national economies, thegovernments of the European Community’s core states imposeda new framework, which has gone down in the annals ofeconomic history as the Maastricht Treaty. It was designed toestablish the contractual foundations of the EuropeanCommunity’s transition to the European Union. The so-calledconvergence criteria at the core of the Treaty establishedparameters for inflation, national budgets, exchange rates andinterest rates. They also introduced a cap on annual debt (threepercent of the gross national product or GDP), thereby setting thecourse for the introduction of a single currency, the euro.

PASOK had been re-elected as the governing party in 1993. Itseconomic decision-makers and planners now found themselvesin a squeeze. For Greece as for other countries, implementation ofthe Maastricht standards entailed abandonment of a policy of fullemployment that had until then been bolstered by a robustwelfare state. The Greek government was forced to beginworking towards the flexibilisation of employment relations andthe deregulation of the public sector. Officially, it played alongand made an effort to improve the public sector’s economicefficiency. But due to pressure exerted by Greece’s strong unionmovement, effective deregulation and the lowering of massincomes were out of the question. It was only in 1996, when theneoliberal Kostas Simitis replaced the deceased AndreasPapandreou as head of government and curbed the influence ofPASOK’s previously dominant party left, that the consensus onthe welfare state was significantly challenged. If the floodgateswere still not opened all the way, this was because there emergedwithin parliament a stable left-wing opposition that acted inconcert with the traditionally influential communist bloc atcritical moments. Major strikes and social struggles limited theextent of the welfare and wage cuts. However, Greece’s competitivenesson the European market declined continuously. As aresult, the country went from a positive to a negative tradebalance and its budget deficit soared. Even prior to the late1990s, the budget deficit’s annual increase exceeded five percentof GDP, and total debt soon exceeded annual economic growth.These were blatant violations of the criteria stipulated in theMaastricht Treaty, and so the emergent scenario of over-indebtednesswas veiled by means of statistical manipulations. By thelate 1990s, Greek policy was significantly out of step with theprocess of neoliberal restructuring that countries such asEngland, France and Italy had been undergoing since the 1980s,and which was also increasingly evident in Germany and theLow Countries.

Nonetheless, in 2001, Greece was admitted to the eurozone,which had in the meantime been established within theEuropean Union. While it is true the basic statistical data Athensprovided to Brussels concealed the extent of Greece’s economicimbalances, everyone involved was aware that Greece did notsatisfy the criteria stipulated in the Maastricht Treaty, particularlythe Treaty’s budgetary parameters. Why the course wasnevertheless set for Greece’s admission to the eurozone issomething we will only know with certainty when the relevantdocuments are made public. Yet we can safely assume, eventoday, that geostrategic and short-term political goals played adecisive role. Two years after the destruction of Yugoslavia,Greece was a crucial outpost from which to begin integrating theBalkan states into the EU. It also secured the southeastern flankof the EU’s planned “eastward enlargement.” But short-termpolitical goals also played an important role. The Greek SupremeCourt had just accepted compensation claims by victims of theGerman occupation of Greece, and it had declared the confiscationof German assets legal. No one but the Greek governmentcould halt the proceedings. It did so after the Germangovernment promised to support Greece’s application foreurozone membership.

From the perspective of the Greek elites at the time, admissionto the eurozone was attractive. They were able to instantlyabandon their extremely depreciated currency and exchange itfor the “hard” euro, which presented them with extremely cheaprefinancing options. There followed a period of rapid economicgrowth, with annual growth rates of between 3.7 and 5.2 percent;this period lasted until 2007. Maritime logistics, the petroleum-processingindustry, tourism, construction and banking all flourished.To this were added massive imports of French, Germanand Swiss capital and ample European Commission subsidies forthe development of infrastructure; given Greece’s heightenedgeostrategic importance, these were considered a safe long-terminvestment. No one who remembers the Greece of the lastcentury can fail to be struck by the tremendous amount of infrastructuralinvestment the country has seen since then: witness thenorth-south highway from Thessaloniki to Athens, the west-easthighway from the Ionian Sea to the Turkish border in westernThrace (especially important in military terms), the suspensionbridge near Patras, which connects the Peloponnese with westernGreece, Athens International Airport, the Attica ring road, theAthens subway, the Piraeus container port and the new suburbanrailways in Athens. To this were added the vast constructionprojects associated with the 2004 Olympics, which carried thereal estate boom to extremes.

In parallel with this, Greece indulged in exuberant militaryspending. Between 1992 and 2008, the country imported 75billion euros worth of military equipment, mainly frigates fromFrance and tanks and submarines from Germany. Annualmilitary expenditure rose to 4.3 percent of GDP, more than twicethe corresponding figure for Germany. This ramp-up was legimitatedby reference to Greece’s “hereditary enemy” Turkey – aNATO member like Greece itself. Turkey had conquered andannexed part of Cyprus in 1974, and its military expenditure waseven higher than that of Greece during this period. German andFrench defense contractors were the laughing third party and theprofiteers of this regional conflict. At the outbreak of the currentworld economic crisis, the two antagonists in the easternMediterranean were the foremost recipients of German armsexports: Turkey headed the list with 15.2 percent, followed byGreece with 12.9 percent.

The profiteers of the short-lived euro boom are easilyidentified. In essence, three closely interconnected sections of theruling elite divided the spoils between themselves. First andforemost, there were the family clans who own the lion’s share ofGreece’s shipping and banking capital, as well as most of itspetrochemical industry. During the Simitis era, the businesstaxes to be paid by them were lowered to 25 percent, allowingthem to enrich themselves dramatically during the economicboom. The more liquidity they disposed of, the less inclined theywere to pay taxes at all. This led to a remarkable deterioration inthe tax compliance of parts of the conservative upper middleclass (doctors, real estate brokers, high-ranking bank employees,lawyers). Prior to the outbreak of the world economic crisis, thecountry’s top 30,000 families held more than 250 billion euros incapital assets. Of these, 100 billion alone were held as bankdeposits; at least another 100 billion were transferred abroad.

The second group was represented by people from Europe’sleading capital goods, construction and armament corporations,as well from the European financial sector. These segments ofEuropean capital have traditionally enjoyed close ties with thefamilies controlling Greece’s shipping and banking capital. Forexample, the Latsis clan, which domiciles in Switzerland, isbound up with Deutsche Bank AG and Switzerland’s two majorbanks; ThyssenKrupp is bound up with the Greek shipbuildingindustry; Germany’s and France’s leading constructioncompanies are bound up with the Greek real estate sector; theFrench and Franco-Belgian banks Société Générale, CréditAgricole and Dexia control significant parts of the Greekfinancial sector, via their holding companies and subsidiarycompanies. It was by way of these ties that the past decade’smajor investments in infrastructure were planned and implemented;responsibility for refinancing and hedging the investmentslay with the treasury. It was only after the infrastructureboom that the issuing of two-, five- and ten-year governmentbonds outstripped the analogous lending practices of theeurozone’s other peripheral states.

The third profiteer of the euro boom was the political class ofGreece, represented, since the end of the military dictatorship, bythe two major parties PASOK and Nea Dimokratia (ND).Following the economic paradigm shift imposed by KostasSimitis in 1996 and the elimination of the party left, PASOK’sreservations about the major entrepreneurial dynasties, theorthodox state church and the military-industrial complex weredropped. PASOK also entered into an unqualified symbiosis withthe ruling elites, especially with regard to infrastructuralinvestment, defense contracts and the refinancing guaranteesthese inevitably entailed. During the boom period, Siemens alonemobilized some 15 million euros in slush money with an eye togaining control of the Greek telecommunications provider OTE,influencing the Defense Ministry’s contracting activities andsecuring for itself the most important of the investment projectsassociated with the Olympics. But that was only the tip of theiceberg. The European investors’ onetime deposits on the bankaccounts of PASOK’s and ND’s leading politicians merely supplementedlong-term bank loans. The two parties used these loansboth to maintain their apparatus of functionaries and to financeelectoral campaigns. The systematic purchase of the country’spoliticians and their associated apparatuses of power and propagandabecame an integral component of the boom period.

Thus when PASOK lost the elections in 2004 and the NDcandidate Kostas Karamanlis became head of government, thiswas a mere change of label, entailing no more than a shift in thespectrum of favored social groups. As a result of this sort ofclientelism, corruption and greed spread through broad strata ofsociety. It is appropriate to speak of a system of social corruptionthat stalls the development of solidarity and social equality sourgently required today.

The ruling classes’ unbridled enrichez vous already had aserious downside prior to the outbreak of the crisis. At thebeginning of the new millennium, Greece developed a consistentlynegative trade balance. The budget deficit got seriouslyout of hand, due to the refinancing costs associated with thecountry’s infrastructural investments. There began a creepingprocess of deindustrialization, as the country’s relatively highunit labor costs and its continuously declining competitivenesscould no longer be compensated for by devaluing the nationalcurrency. Greek exports within the EU declined correspondingly.The option of reorienting Greek export policy towards developingand newly industrializing countries was also increasinglyunviable, as these countries had themselves become export-orientedlow-wage countries that were out-competing Greekproducts and services. Thus the loss of national sovereignty inthe field of monetary policy not only eliminated the compensatorylevers of “external” devaluation it also confronted theGreek economy with a “squeeze” situation with regard to tradepolicy. Greece faced the prospect of being crushed between theexport pressures emanating from the core states of the EU, stateswhose economies are characterized by a high degree of technologicaldevelopment and an advanced organization ofproduction, and the trade offensive begun by the low-wagecountries of the global periphery. Unemployment rose markedly.Young high school and university graduates who did not yetdispose of any employment guarantees were especially affected.They were increasingly forced to fall back on the socially unprotected,temporary and poorly paid employment relations thathad emerged in the wake of the illegal immigration of the 1990s,leading to the rise of a veritable shadow economy. This development,unheard of in Greece, was increasingly interpreted as aworrisome portent by social science scholars; there was talk ofthe development of a new “700-euro generation.” The term wasquickly appropriated as an identity-establishing self-descriptionby the emergent social movements of young precarious workersand illegal immigrants.

In the Vortex of the World Economic Crisis

In the course of 2008, the shock waves emanating from the worldeconomic crisis reached Greece. Maritime logistics collapsed andthe shipping companies, retailers and port operators active inthis industry lost more than a fourth of their revenue. To this wasadded a drastic downturn in the tourism sector: in 2008 and2009, the number of vacationers visiting Greece declined byabout 20 percent. These effects were directly passed on to Greekbanks. Like those of other countries, the Greek financial sectorneeded to be sustained by state guarantees in the spring of 2009.The contraction of the Greek economy’s key sectors had far-reachingstructural consequences. Since primary and secondarymarket exports declined equally, the process of deindustrializationwas accelerated. Unemployment climbed above the 10-percentmark, and only two thirds of new first-time job seekerscould still expect to find employment, a marked deterioration ofjob entry conditions notwithstanding. This affected massconsumption. The Greek economy went on to lose its domesticbuttress as well, entering a recession that persists to this day andhas worsened continuously. While the decline in annualeconomic output remained at just under 5 percent of GDP until2010, this margin was significantly exceeded the following year.
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