A guest blog from Jeb Brugmann: A Greek Tragedy in 6 Parts OR How northern Europe (also) avoids its systemic problems
1. IT STARTED AS A
POLITICAL PROJECT, aimed at eliminating European nationalistic tendencies and
ensconcing a single common market. All the parties involved were aware, if
not also complicit, that the 'numbers' were being cooked to support the
political project. To build Eurozone membership in the 1990s and early Aughts,
creative national accounting was used to meet financial thresholds
for entry (e.g.,3% deficit/GDP threshold). European statistical
and financial institutions knew that the fiscal household in a number of
countries was in poor condition, but chose to look the other way on Greece,
Spain, Portugal and Italy. Germany and France themselves violated the 3%
threshold in years leading up to the 2007+ global financial crisis (GFC). These
facts are overlooked amidst today's theatre of self-righteous northern
European finger-wagging towards Greece.
Meanwhile, the
European financial institutions (and the IMF) have continued to cooked numbers
to promote their failed austerity policies for Greece (see below).
The bail-out troika's unreality about the effectiveness of
austerity politics
2. THE EUROZONE WAS
BUILT UPON A FOUNDATION OF WILD WEST FINANCE. In the same era as the Euro
project, the deregulated banking sectors of the U.S. and Europe became
masters of high-risk/high-profit derivative instruments, involving shell games
of risk transfer and the purposeful obfuscation of financial realities and
integrity. A well known case in point is Goldman Sachs' 2001, 2.8
billion euro debt swap with Greece--which included a currency swap allowing
Greece to reduce the level of debt reported to Eurostat. “The Goldman Sachs
deal is a very sexy story between two sinners,” said Christoforis Sardelis, who
oversaw the swap as head of Greece’s Public Debt Management Agency from 1999
through 2004. German and French banks went on to make major loans to the corrupted,
clientilistic Greek governments of both the traditional right and left. They
knew that Greece's finances were a shaky house of cards, but felt protected by
the strength of the euro and the complicit support of northern European
governments and European institutions. Then the financial crisis hit--due
to the now famous collateralized debt obligation (CDO) derivatives of the U.S.
housing market (which had fueled a housing market that was building 60% more
housing than the growth in the number of actual U.S. households)--highlighting
the fact: it's a systemic problem, not a single-nation problem...
3. TRAGEDIES OFTEN
INVOLVE A FORK IN THE ROAD DECISION. The northern European
governments and the
European Union opted to bail out their risk-taking lenders instead of making
them pay for their failed and irresponsible lending practices. To do so, they
provided loans to Greece, Portugal, Spain and others to be flowed-through
to the lending institutions. The lenders took a bit of haircut but effectively
got bailed out. Meanwhile, fiscal austerity measures were imposed as loan
conditions, on the heals of the GFC recession itself...thus driving these
economies into depressions. In Greece, the decline in GDP has fallen further
and for a longer period than during the 1930s Great Depression in the
United States. (It took the opposite of austerity--protracted stimulus and then
wartime spending--to get the U.S. out of those depths.)
Post-GFC Greek economy under EU austerity (Source: New York
Times July 11)
Fiscal stimulus was
used in Germany, France, the U.S. and elsewhere to recover from the GFC...It
worked in Germany.
"Fiscal Stimulus in Germany in the Aftermath of the Great
Recession" (Gyorgy Barabas 2013) Y-axis = billions GDP in Euros
Somehow finance
ministries of certain countries find this to be an irresponsible option for
Greece. Now they add a fire sale of national assets. What odds of recovery do
London bookies give the latest scheme?
5. GREEK
TRAGEDIES CAN ONLY BE AVOIDED THROUGH SYSTEMIC CHANGE...Moral hazard in
the financial system has only been increased since the GFC. And it rests more
with the system's creditors than with its debtors. That seems to be
something much of the current northern European group of leaders still lacks
the spine to address. They are more prepared to provide 'humanitarian
assistance' for a deepening human crises on the continent than to muster this
courage.
6. IS THE EUROPEAN
POLITICAL PROJECT ITSELF NOW AT RISK? The last months' negotiations on the
Greek debt crisis have evidenced increasing nationalistic sentiments, with
classic utterances and tones of national-moral superiority, amongst
both northern European political leaders and the populace. They are joined
in self-righteousness by spokespeople from the finance industry. The
hypocrisies and lapses in recent historical memory are breathtaking. What
further tragedies remain in store?
Jeb Brugmann's latest book is
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