Throughout its modern history (Revolution of 1821 to the present), Greece has been financially dependent on the Great Powers, especially on Great Britain from the 1830s to 1940s, on the US from the late 1940s until the 1970s, and on France and Germany from the 1980s to the present. The price Greece has paid for financial dependence is structural underdevelopment. Financial dependence entails economic dependence that includes trade and manufacturing dependence. External financial dependence is continuing despite the fact that Greece is an EU member, which presumably projects the image of a First World country protected by the euro as a reserve currency and by EU trade and other regulations.
Structurally, Greece remains an externally dependent society that has raised living standards in the past four decades largely through public and private borrowing instead of sustainable economic development. A couple of years ago, I baptized the Greek economy “Baksheesh Capitalism” to distinguish it from “social welfare capitalism” practiced in the Scandinavian countries, or corporate welfare capitalism that prevails in the US. At the time, I noted that Greece is one of the most corrupt countries in the world, considering that about one-third of its GDP is in the category of “informal economy” and that every sector from banking and health care, to education and religion has been operating at some level under the rules of “Baksheesh Capitalism.”
There is no doubt that “Baksheesh Capitalism,” deeply ingrained into the country’s culture, is a major part of the problem, but even if Greece had “Icelandic-style capitalism,” the EU and IMF would still impose austerity measures. Under pressure to satisfy finance capital, which imposed credit card-style interest rates on Greek bonds, the EU compelled Greece to undertake a series of deficit-reduction measures that are as harsh as those that the IMF imposes on all borrowing members.
The fundamental prescription for austerity measures has not changed in the past fifty years, and those measures that target slashing the public sector and reducing working class and middle class incomes are essentially the same for all IMF borrowers. That bond rates rose sharply in order for Greece to borrow is an indication of its lack of creditworthiness, speculation by bond traders and Hedge Funds, and the extremely tight global market for loans at a time that most of the world suffers staggering budgetary and balance of payments deficits. Portugal and Spain are currently facing similar problems and are now at the center of bond speculators.
While IMF austerity entails cutting public sector spending, wages and benefits, and providing incentives for capital investment, the unique aspect about Greece having to resort to the IMF as Germany demanded is that it is a full member of the EU, thus a stab at the monetary union’s integrity. It now seems certain that Greek bonds (now Portuguese and Spanish bonds) were the vehicle speculators used to hit at the real target, which is the euro. German politicians belatedly recognized this reality and Chancellor Angela Merkel’s speeches indicate, but some of their own banks are making money in the process.
The mass demonstrations and riots on 5 May 2010 in Athens and other cities were not just against the government that has become a mere caretaker for the EU and IMF as guardians of finance capital. In the recent past amid mass demonstrations, destruction to property and injuries to people are invariably carried out by anarchists and/or extreme right-wingers. It is estimated, however, that mass demonstrations on May 5th included more than 200,000 people who were workers and middle-class people protesting austerity and a bankrupt regime that has surrendered national sovereignty to finance capital. EU-IMF austerity measures are responsible for the death of the three people, including a four-month pregnant woman.
EU-IMF measures are responsible for the lower living standards that Greece and Southern Europe will suffer during the course of this decade. EU-IMF measures are responsible for the short-term strengthening of finance capital at the expense of inevitable sociopolitical instability that will plague the EU in the next few months and perhaps years unless monetarism and neo-liberalism designed to destroy the social welfare state are balanced with progressive policies. Tested under the extreme economic contracting conditions of 2008-2011, the EU inter-dependent integration model is not nearly as cohesive as it had promised in the past decades.
On the contrary, the EU inter-dependent integration model ostensibly more egalitarian than the US patron-client model proved rather tenuous because for the first time the IMF-style monetarist policies are imposed on a country with a reserve currency. This means that Germany opted to pursue the US patron-client integration model applied to Latin America and other economic satellites since the Spanish-American War. Meanwhile, the entire eurozone area has proved more vulnerable against intense global competition and it remains to be seen if it can survive attracts on more members currently watching how the stronger members weaken lesser countries like Greece.
The irony of the EU-IMF program is that its publicly stated goal to help Greece achieve equilibrium will not be achieved. On the contrary, at the end of the program’s course in 2013, Greece, whose public debt now stands at 300 billion euros or about 115% of GDP, will have total public debt of half-trillion euros or about 150-160% of GDP–unless of course Greece discovers massive reserves of oil or natural gas. In three years, the country’s socioeconomic structure will be weaker than it was during the early 1970s when the military dictatorship was in charge. About 8000 individuals who own about 80% of the wealth owe 20 billion euros in taxes in a country where tax evasion is rampant.
The small percentage of people who own most of the wealth and owe most of unpaid taxes have taken out of the country an estimated 20 billion in the past six months. They realized that the PASOK regime elected six months ago would pursue tax reform and pursue tax evaders. Besides tax evasion by the elites and street vendors alike, Greece spends about 4.5% of GDP on defense, a staggering percentage owing in part to NATO commitments–and to defend what exactly other than its borders from its old nemesis Turkey. The EU and IMF do not address defense spending.
While they do address tax evasion, the IMF-EU-dictated policies target labor and middle class, as they encourage government to offer tax incentives to finance capital to attract investment. Monetarist policies fifty years ago that the IMF imposed on borrowing nations in Latin America, Asia and Africa resulted in mass income distribution from the bottom of the social ladder up and from the borrower (invariably underdeveloped) to the creditor (developed) countries.
In their quest to preserve and strengthen finance capitalism and uneven economic development justified by the same neo-liberal ideology that caused the crisis of 2008-2011, IMF policies working to strengthen the advanced capitalist countries will continue to precipitate social unrest on a global scale and to undermine fragile democratic institutions in semi-developed and underdeveloped countries. After the Great Depression resulted in financial retrenchment from the less developed to the advanced capitalist countries, the latter squeezed as much capital as they could from the former to help strengthen their economies. Today we see the exact same process unfolding on a world scale. The question is what price is the G-7 willing to pay if/when social and political instability begins to spread throughout the world?
Offered in periodic installments, the IMF-EU package for Greece amounts to 110 billion euros, but the government in Athens has granted 100 billion to banks, a number of them foreign-owned; 100 billion in loans and guarantees that have come from the middle class and labor. Although the EU-IMF agreed to modestly lower the interest rate and extend the payment period for the loans because it is impossible for Greece to service the loans, the public debt to GDP ratio will be more than 160% in two years.
If we calculate the combined sovereign debt with that of pension funds, public enterprises, and private debt, the aggregate debt is just under one trillion euros, while the GDP is less than one-third that amount. The tragedy of contemporary Greece is that the generation now in the labor force, as well as the next four generations are condemned to work so their government can pay off mostly foreign creditors instead of building their future under a socially just society. The financial and political elites of Greece, the US and EU have stolen their future; a situation not much different that the ones in Ireland, Portugal and Spain.