Greek Bankruptcy and National Sovereignty (Jon Kofas, Greece)

Posted on November 1st, 2010

The most significant global depression before the Great Depression of the 1930s took place in the 1890s, and as expected it resulted in turmoil in poorer countries that were financially dependent on the rich nations. The “panic of 1893″ hit countries from the US to Russia very hard, and it was the era that gave birth to many radicals in Russia, China, Europe and the US. On 10 December 1893, Greek premier Harilaos Trikoupis stood before Parliament and announced official bankruptcy. After a frenzy of massive borrowing that European banks encouraged so that Greece could modernize its infrastructure so that it could attract more foreign investment, after a decade of Western economic expansion in the 1880s, the depression of the 1890s that plagued the US and Europe forced Greece into bankruptcy. Like the Ottoman Empire, China, Russia and many Latin American countries that had a very large foreign debt, Greece fell under tight financial control of the Great Powers. Like the Ottoman Empire, China, Latin American republics and to a certain degree Russia, Greece was a quasi-protectorate of Britain and France that represented the interests of bondholders and export interests. As to to be expected, Greece had very limited sovereignty. The idea that the country was a “democracy” was a goal to be achieved at some point in the future. In 2010 the situation in Greece is not very different than in the late 19th century. A number of economists and financial analysts speak of the possibility that Greece may still fall into bankruptcy. In reality, Greece is in bankruptcy managed by Brussels and the IMF. What brought Greece to this tragic state of affairs that it has lost its creditworthiness along with limited sovereignty it enjoyed? “It was quite obvious that one day Greece would have to face this kind of problem, and we knew that this problem would occur,” Eurogroup chief Jean-Claude Juncker explained during the International Monetary Fund and World Bank meetings in Washington in early October. According to Juncker, German and French officials along with European Central Bank chief Jean-Claude Trichet were well aware of “the perspectives of what was not at that time known as so-called Greek crisis…I could not go public with the knowledge that I had.” What did EU officials know? They knew that Greece was engaged in heavy deficit financing, that it was falsifying revenues and expenses, balance of payments deficits, plagued by widespread tax evasion and official corruption that involved domestic and foreign companies; that about one-third of the economy was “unofficial” (black market that included money laundering, off-shore operations, etc.), and that Goldman Sachs had engaged in swap deals to help Greece conceal its true deficits. Like rich nations, Greece continued raising its public debt until the global financial crisis hit home. Foreign bondholders demanded higher interest rates to extend more credit to service existing loans. Just as lenders demanded that poorer countries like Greece lower the ratio of debt to GDP, the economic slowdown entailed higher debt-to-GDP ratio and the inevitable cycle of more massive public borrowing to service existing obligations. After it borrowed $110 billion euros in 2010 (to service existing loans for the next two years), Greek debt-to-GDP ratio will be 150% by 2014. No matter how well the national economy performs in the next two years, Greece will not be in a position to service its debt after 2014. Meanwhile, billions will be made by bondholders in extra payments primarily at the expense of Greek workers and the middle class who are enduring lower living standards and higher costs for the privilege of keeping foreign bondholders and their governments managing the Greece debt crisis. Although there is surplus capital in the private sector of advanced capitalist countries, the IMF and G-7 governments insist that poorer countries (Greece is merely the poster child) must be forced to pay higher interest rates and thus decapitalized to strengthen Western finance capitalism. On 27 October 2010, it was reported that US corporations are hoarding one trillion dollars, using the money on mergers and acquisitions and repurchase of stock, instead of generating economic growth and lowering unemployment.
(http://finance.yahoo.com/news/US-Companies-Hoarding-Almost-nytimes-2141446680.html?x=0&sec=topStories&pos=1&asset=&ccode= )
Because no one believes that Greece will be able to service loans amounting to one-third of GDP annually, the only question is to roll over debt, to restructure a payments schedules, to forgive part of the debt, to extend the current IMF-EU program another three to five years as the IMF has informally suggested, pending final EU approval, or for Greece to walk away from the EU and declare an outright default. The answer of course is one that has been worked out already, namely managed bankruptcy under IMF-EU austerity and policy guidance. It is absurd to even suggest, as some prominent economists and financial analysts have been doing, that Greece may lapse into bankruptcy when it is already there and operating under an IMF-EU managed bankruptcy program. Because Greece is part of the eurozone, an official declaration of bankruptcy would be a reflection of the EU. Unlike Trikoupis who had the courage and integrity in 1893 to stand up before Parliament and declare bankruptcy and place the country under rigid foreign financial control, PASOK Premier George Papandreou employs meaningless “Socialist,” nationalist, and populist rhetoric to explain the “true state of affairs” in Greece. Beyond the very tragic issue of millions suffering lower living standards, a situation not very different for other countries from the north Balkans to Ireland, the question is to what degree is Greece (Ireland, Portugal, and other countries in similar situations) a sovereign country and to what degree do citizens have a voice in what the media and government tells them is a democratic process? Can a country so externally dependent as Greece enjoy democracy at the same level as a more affluent country like France or the US? But let us quickly reflect on democracy in France and US; to what degree does a worker or a middle class professional in France or the US feel that she/he is making a difference in the democratic process, and to what degree do citizens believe that it is large corporations determining the country’s economic destiny?