Monday, 26 September 2011


The issue of debt default for Greece in particular and the periphery southern EU members in general, as well as the issue of the eurozone's integrity has been analyzed for the most part on the basis of political and economic interests. That is to say, investors shorting the euro and bonds of debtor nations like Greece are betting to make money in case of default of some sort, or at the very least restructuring and/or managed default where the euro is preserved and the banks are protected but the debtor government stops payments to creditors for a specified period, before negotiations resume to start new payments under roll-over debt.

The other school of analysts is purely political, divided between the mainstream supporters of the status quo - conservatives, centrists, and center-leftists - and those opposed to the status quo ranging from Communist and non-Communist leftists opting for default on debt payments because they want the bleeding from the taxpayers to banks to stop, to right wingers who want the end of the eurozone and a return to national currencies and national identity of fiscal, monetary, trade, economic and labor policies.For both the far left and the far right, the issue is how to capitalize on the debt issue to win popular support from the middle. Hence, the real possibility that the parliamentary system is indeed weakening as a result of the debt crisis.

It is often amusing to see neo-Nazi and other ultra right wing groups from across Europe use the Greek debt crisis as a symbol of all that has gone wrong with the European Union, and as a propaganda tool to promote extreme forms of nationalism. Equally amusing are the efforts of major European banks arguing that they cannot accept any more 'haircut' proposals with regard to the Greek bonded debt, invariably linked to the entire EU economy, unless every possible effort is made to extract 'surplus' public and private capital from Greece in order to service the public debt. Of course when the trade unions and leftist parties threaten with demonstrations and a possible uprising, the fear on the part of bankers is the possibility of losing everything. The entire affair is a game of leverage and the degree to which the other side blinks first.

For their part, the leftists argue that ordinary middle class and working people in the debtor nations as much as in the creditor countries are asked to pay the banks that have caused the financial crisis in the first place. The answer for the left is that governments everywhere must turn to the wealthy for higher taxes as the only means to pay for the seemingly insurmountable debt. The public debt is really more political than it is an economic issue not just in Greece, not just in Europe, but in the US as well. The question is who pays and who benefits. The interest group (s) with the lobbying muscle benefits, while the interest groups without a voice in government pays. The public debt issue is in the last analysis a political issue, no matter how hard economists try to convince the public otherwise.

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