Sunday, June 26, 2011

Trying to understand the Greek debt crisis through the fog

From Aljazeera English, Listening Post - Greece: Is the media part of the problem? 06/25/2011. Despite the title, it's the first 10 minutes of this report that is about Greece and what a poor job the European media have been doing covering this story. It doesn't address the nature of the American media coverage. I can't really make a generalization like saying European media coverage of the Greek crisis hasn't been as pitiful as the American. But I would be astonished if American TV coverage could be considered as better journalism. Certainly what I've seen of the print media coverage of the Greek situation from German, Austrian, Spanish and British, including online coverage from news organization with major print outlets, has been far better than the US reporting.

Susie Madrak at C&L links to this article by Michael Hudson, Whither Greece Truman Factor 06/25/2011 on the Greek debt crisis and the attempts of the Troika (EU Commission, European Central Bank, IMF) to use the crisis to impoverish Greece and severely cripple its public services:

The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil — in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury).

As Vladimir Putin pointed out some years ago, the neoliberal reforms put in Boris Yeltsin's hands by the Harvard Boys in the 1990s caused Russia to suffer lower birth rates, shortening life spans and emigration - the greatest loss in population growth since World War II. Capital flight is another consequence of financial austerity. The ECB’s proposed "solution" to Greece's debt problem is thus self-defeating. It only buys time for the ECB to take on yet more Greek government debt, leaving all EU taxpayers to get the bill. It is to avoid this shift of bank losses onto taxpayers that Angela Merkel in Germany has insisted that private bondholders must absorb some of the loss resulting from their bad investments. [my emphasis]
He's giving Merkel's government too much credit on that last point. The rating agencies and the Troika have successfully equated two different approaches to the debt crisis: restructuring/rescheduling (changing the terms to ease short-term pressure on the debtor without forcing creditors to take losses on the principal) and the "haircut"/writedown/writeoff (in which some or all of the debt principal is deemed uncollectable and taken as a loss on the books of the creditor).

There doesn't seem to be much doubt by the players involved that in fact Greece isn't going to pay back all the principal on their current sovereign debt. As Hudson writes, "Financial markets already have priced in the expectation that Greece will default in the end. It is only a question of when." Paul Krugman has been patiently making the same point for months. But from some combination of greed on the part of German and French banks who hold large amounts of the debt, rich country arrogance on the parts of the German and French governments, and the bizarre hold that Herbert Hoover economics on the governing elites of US and Western European democracies, the Trioka doesn't want to recognize reality and require the banks to take their losses yet.

What German had proposed over the last couple of weeks was a restructuring of the Greek debt that did not require the creditors to take writeoffs. Where the German government differed from the French was that Germany wanted to require private creditor banks to take part in the restructuring, while Sarkozy's government wanted the banks' participation to be "voluntary," another way of saying he didn't want the banks holding the bad loans to be inconvenienced in the slightest. And Merkel's government capitulated on that point. So a restructuring is conceptually part of the mix, but the deal hasn't been done yet.

But Hudson is on to something when he suggests that the Troika's basic idea is "for the ECB to take on yet more Greek government debt, leaving all EU taxpayers to get the bill." Or, as he puts it later in the article, "Banks are using the time to take as much as they can and pass the losses onto the ECB, EU and IMF - "public" institutions that have more leverage than private creditors." In other words, the public should pay for the bank's bad loans and the wrecker actions of private bond speculators. What Jamie Galbraith has characterized as the Predator State approach to governance of the Cheney-Bush Administration seems to have taken hold in the European Troika. Greece has been the worst victim of its results so far. But unless popular resistance translates into actions by political parties and governments that block the Troika's most destructive demands, Greece will surely not be the last victim.

The first half or so of Hudson's article provides an accessible description of the basic problem. Though it makes the ECB sound like the main player in the austerity program rather than the ECB in combination with the EU Commission and the IMF, acting in concert as the Troika. (Though he doesn't mention the notorious trio a couple of times.) In the second half, he rambles into more a more general theoretical and historical discussion that doesn't contribute much to understanding the immediate issue. Though I suppose it's interesting to know that the Spartan city-state had some debt-cancellation programs in the 3rd century BCE.

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