Greece is descending into chaos. It should hardly be news to anyone: but it has not happened before is the greatest surprise.
Of course Greece is partly responsible for its own economic malaise. It was overly generous with some aspects of spending, and far too lax about the collection of tax. But the fact is that it was allowed to be a member of the euro, and was even encouraged to be a member of the eurozone. But now when it is apparent that the whole basis on which the euro was constructed was erroneous because you cannot have monetary union without fiscal and political union (and there is even an argument that you might not want monetary union when you have the latter precisely so that areas with differing rates of growth can continue to price themselves into work) the people of Greece are being forced to take the consequence of that error made by economists from elsewhere.
The result is that the people of Greece are now also being forced to suffer so that German banks do not.
This is no minor crisis. Greece is being forced to the point where its economy cannot function, whether legitimately or illegitimately. Its currency is being denied to it ( because that will be the effect of it being forced from the euro, as seems possible), and with it the means of exchange that underpins its economy might be removed. No one, after all, knows if an alternative currency will be credible, acceptable, or will simply be worthless paper.
In this situation matters develop rapidly. Fear spreads, violence is likely, political breakdown is easy to imagine, containment is difficult, the end of democracy is foreseeable in a country which has been subject to military rule in my lifetime, extremism spreads rapidly and the threat to the stability of the region, and beyond, is enormous.
This is what happens when economists translate ill-conceived ideas into the real world.
And in all this, it remains the bankers, and their economists, who demand that Greece suffer so that banks are spared. But as we have seen before, what happens in Greece today will happen in Portugal, and Ireland, and maybe Spain next.
It sounds a little simplistic to say that we have a choice between the euro, the banks, and the maintenance of the European ideal of free, democratic states trading with each other in an open market environment for the good of each of them. That is, however, how it feels, and I have a gut instinct that this is the challenge that we now face.
There is, of course, no doubt about who should win: it is the people and the democracies of Europe that should win. We can suffer an organised breakup of the euro. We can suffer the inflation that recapitalisation of the banks will require ( although note that quantitative easing in the USA and UK has so far not raised interest rates, and nor has it had an impact on inflation—the inflation we are suffering coming from quite different sources). We can endure egg on the faces of the central bankers, and the economists who advise them. We cannot endure the suffering of whole countries, a threat to democracy, the destruction of well-being and massive political instability.
There is no real choice: if the bankers try to win this one everyone else loses. It's not just the people of Greece versus the banks this time, it's the people of Europe versus the banks. This time it's not just the people of Greece who should be on the streets about it: very soon it should be people across Europe who should be on the streets about it. We are being threatened to the very core of our democratic existence by the banking institutions of Europe. This is not the peripheral issue that an epicentre in Greece might suggest. This goes to the core of Westminster in opposition to the City of London as much as it goes to dispute between Brussels and Frankfurt.
In each case there is a question that has to be answered: who is to rule?
The answer is obvious to every democrat, but not to every banker.
But there is only one answer for those who value freedom and that means Greece has to be a point of show down with banks.
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This is part of a general wake-up call: many people are saying that this is no longer so much left vs. right as people vs. banks http://bit.ly/mqAYbR Of particular interest are the debt articles by Golem XIV looking at the possibilities for a debt jubilee, and the patterns in cross-cutting webs of debt between countries.
Banks are not alien creatures that have just landed on Earth. They have shareholders, depositors, creditors and customers. Eventually, these stakeholders will have to take the hit for whatever the Greeks fail to repay. It is completely pointless to mention the “banks” without understanding who they really are.
The real issue here is why the Germans or the French, who have by and large managed their economies prudently prior to and during the downturn, and which in the case of Germany have made considerable sacrifices in the early part of the noughties, should be footing the bill for a nation that has lied its way into the Euro, fudged its public finances, and which is generally run like a kleptocracy.
Because if they don’t the German and French banks will fail as they lent so much to Greece.
BB
You really are absurd
Somehow you’re now getting to the point of pretending that people who deposit money in the bank are responsible for the crisis in Greece
the reality is that banks are separate entities, distinct from their owners, and distinct from their customers. They are managed by people who have control them, quite independently of any other party. They didn’t used to be heading that way. They now do. Those are alien entities which we did not plan for, and which now exist. They do behave in the way that I described, and you are living in a fantasy that denies this.
That is your problem
That is why we ignore people like you
And we especially ignore people like you for a very good reason: you cannot see beyond the end of your nose. of course Greece made mistakes: no one says otherwise. But do you really wants to spite your face for that reason?
For heavens sake, show just a little maturity, empathy, and understanding. I call it the capacity to be human. I am sure you have it within you, it’s just a shame that you’ve suppressed it for the sake of neoliberalism.
After reading Paul Mason’s excellent running commentary on the Greek situation, I’m convinced that Greece is going to default – and also that the existing state apparatus is going to be overthrown. That could mean some kind of revolutionary government – alternatively (and most frighteningly) it could mean a military coup. Greece could well end up leaving the EU altogether.
The implications are extraordinary: maybe this is coming down the line for Portugal and Ireland also. (and, just maybe, for the UK, if Osborne’s Plan A goes *really* wrong).
EU leaders are terrified about the prospect of Greek default but they don’t have a workable plan to stop it at the present time, so I can’t see any alternative really.
I tend to think the answer is obvious to every banker (Lagarde et al), it’s just different from the what the other 99% think.
It is a class war, as w buffett says, and wars are generally ugly affairs where morals are swept aside before existential imperatives.
Propoganda is the main, most insidious weapon in this process, as is the invaluable insiders at the top of every country now.
Who could have imagined a financial crisis, generated by a basically depraved elite, could be turned into a reason for dismantling all that is humane in our societies?
“Who could have imagined a financial crisis, generated by a basically depraved elite, could be turned into a reason for dismantling all that is humane in our societies?”
Actually Paul, the conspiracy theorists will tell you that the crisis was deliberately engineered to produce just that, and that as a prelude to destroying much of humanity by denying them food and energy, killing many of them off and so leaving a handful of rich folk alive with all the world’s resources to play with in a near-paradise. I’m not saying that I 100% agree with them but I mention this to broaden your perspective on the matter. Try reading Tragedy and Hope by Caroll Quigley. Difficult to laugh at it in light of what’s actually happening in the world right now.
BB
Ha ha, I’m aware of quigley’s (Bill Clinton’s mentor was he not?) work though I haven’t read it.
I understand he generally approved of the project he described in that book?
I am myself what people usually denigrate as a conspiracy theorist, a rose by any other name etc.
We have exchanged comment on the Greek situation before, Richard, so you’ll know that I wholeheartedly agree with you. What I found of interest yesterday listening to the reports on what was going on in Athens was that – at last – MPs who call themselves socialists finally stood up for the values (and people) they are supposed to represent (Papandreou excluded, of course, but then he has probably already been given the nod on a good job somewhere or other after his political carreer is over).
Contrast that – with a few valiant exceptions – with the pathetic response of Labour MPs in the UK to the government’s welfare reform bill, which as Tom Clark points out in The Guardian is based on the dubious use of data but will result in large welfare dependant families in London and the SE existing on less than £3 per day, and effectively punish children for the (perceived) ‘sins’ of their parents in having, a. too many kids, and b. having the misfortune to be born in the SE of England. This, of course, on the same day the Osborne became the latest in a long line of politicians to repeat the snake-oil salesman’s mantra that we need to reorientate the UK economy away from its reliance on the finacial sector, while at the same time suggesting nothing that would lead to – or even begin to stimulate – that outcome – in fact quite the reverse (see your other blog on Brownbornism).
A whole generation of young Greeks grew-up in cloud-cuckoo-land and their lives are blighted forever
With money pouring in from the EU and banks paying huge commissions to their front-line staff (probably including the cleaners) to lend, lend, lend. Houses, cars, boats, holidays, mobile phones, were available on the never-never in a mad free-for-all.
When young Greeks left school material possession which had taken his/her parents a lifetime of work/saving to accumulate (just a few of these chattels) were immediately made “available” to them and they thought this new and exciting dream world would last for centuries.
Now just ten short years later the dream has turned to nightmare and indignant Greeks are losing everything house, job, car and even (Heaven forbid) their mobile phones.
No one can possibly prepare for the destruction that the banks have caused society. Fear, anger, disillusionment and cynicism will result in millions of young people venting their anger on the streets of Europe.
The infrastructure of society must be repaired quickly which will require an end to reckless banking and tomfoolery in the finance industry, job creation and proper tax collection from EVERYONE.
Can I just say, because I have never had the chance to befoe, that I agree more or less entirely with this post of PSG. The only thing I would add is the need for education and (dare I say it) less media influence over people. The banks may have provided the oxygen to the fire, but the fuel was advertising and a whole culture of materialism that we also need to address.
A whole generation of young Greeks grew-up in cloud-cuckoo-land
Good for them (and all the manufacturers of those goods and credit).
You could see it as payback for the horrors the previous generations endured.
If you have an extremely strong stomach, have a look at this wikipedia entry
Greece doesn’t seem to have any hope at all, other than leaving the EU and reverting to the drachma; along with devaluation.
Oh well, Shaun Richards seems to have a reasonable viewpoint:
http://www.mindfulmoney.co.uk/wp/shaun-richards/todays-problems-for-greece-ireland-and-portugal-have-as-their-fundamental-cause-a-single-strategic-mistake/
I don’t think that it is right to blame the bankers. Greece surely deserves most of the blame. It borrowed to finance a lifestyle if could not afford. Lied about its finances in order to join the Euro and now it facing the consequences.
It seems to me that Greece’s finances are now so terrible that it is simply not going to be able to afford to finance its debts. Default it seems is inevitable, probably combined with a departure from the Euro. However, even that is not going to be without considerable pain for the Greek people.
Look, Greece is not blameless
But you’re willing to face catastrophe to punish them
Haven’t you noted what happened after 1919?
It all depends on who you mean by Greece? The rulers or the ruled?
Do you really think the average greek has any more political power than you or I?
The big problem is that moral hazard has been erased from finance.
The rapid expansion of the euro was, in my opinion, engineered to depress the euro to the core countries’ advantage.
After all, how can germany maintain its productive edge if the money markets erode it through currency rises?
[…] And the ramifications are horrid to contemplate. […]
You’re using some kind of speech to text software, right?
” and was evening courage to”
It’s limitations are becoming apparent.
BB
Sorry!
You’re right: but the limitation is mine in proof reading – as is often clear here
On the subject of debt jubilees, it’s worth mentioning at this point that every former civilisation has had debt resets built in at predetermined intervals, three years, seven years, fifty years, whatever. Ours, lamentably, neglects this essential so mathematically our civilisation is doomed on that basis alone. Speaking of which; tick tock 🙂
BB
And the main religions were against usury until they got a piece of the action.
Firstly to say that the article is just perfect. It describes what the situation is exactly now.
True, money was pouring from EE but Greece was compelled to buy expensive weaponry from German and France.
In this meaning some politicians took bribes.
Greeks were obligated to pay huge amount for public works that were overvalued by its corrupted politicians.
Furthermore, Greek politicians were unpunished. That is a gap of democracy.
We can’t shut our eyes to this situation because it isn’t just a case that concerns apart only Greece. Soon it will be a concern for many countries nad their folks.
Greece is a country with a laid-back Mediterranean style and it is worth noting that their life expectancy is higher than that of UK, Germany, US etc. A new young generation has grown up and made use of the structure surrounding them and only a few will have become economists or financial analysts with the skills to see the potential dangers of exceeding prudent borrowing.
A duty of care must be exercised by the lenders (or usurers) and with their acces to the world’s top financial brains, it is a fair question to ask what exactly has been their motive in Greece?
Do you really believe UK inflation would be exactly the same as it is now, if the bank had not QEased? That monetary policy is completely ineffective? Inflation expectations had collapsed before QE was mooted.
http://www.bloomberg.com/apps/quote?ticker=UKGGBE05:IND
@Roger Phlegm
Ah advertising! A subject dear to the PSG’s heart!
Advertising seduces the impressionable, but being impressionable is part of the human condition and it is not possible or advisable to “educate” this out of society.
Satisfying society’s greed for material possessions simply requires money, and the banks offered an almost limitless flow of (sub-prime) credit. The more the money flowed the more society became corrupted by (partly advertising induced) greed; and any “old fashion” aspirations to cautiously improve life style over time were discarded as “get-it-now-gluttony” was let loose to corrupt every thread of society where ethics and morality became subservient to greed.
The regulators (another PSG favourite) remained indifferent to the crazy roulette played by the Banks and no one worried about who sponsored the casino as long as the winnings kept rolling in.
Nick Leeson, Enron, Lehman Bros, Bernard Lawrence “Bernie” Madoff and others appeared detached from the lives of ordinary people — yet they were at the core of the problem and the harbingers of impending disaster.
Powerful banks and finance companies enticed people into their make believe world with their greed created images of Shangri La for all – and they are to blame for the “culture of materialism” which dominated and then devastated many people’s lives.
The useless regulators turned a blind eye to the poker game being played by the Banks, as long as the winnings kept rolling in no one cared if the cards were fixed. The only interest was money to pay for a life style that was inevitably unaffordable and which corrupted every thread of society.
We now live in a debauched world where ethics and moral code do not exist and where greed is good.
And feeble regulation of the advertising deployed by the finance industry is entirely to blame.
We live in a misdirected world where people don’t understand that where money comes from is… the banks make it up! All this nonsense about loans and interest is just to disguise the fact that when you go to a bank and ask it for a loan, what you’re actually doing is asking it to create money for you for a series of fees. If people understood this better I doubt very much the banks would be allowed to continue to get away with it. I’m reminded of the quote from former Chancellor Sir Reginald McKenna from his book Post-War Banking Policy; “I am afraid the ordinary citizen will not like to be told that the banks or the Bank of England can create or destroy money. We are in the habit of thinking of money as wealth, as indeed it is in the hands of the individual who owns it, wealth in the most liquid form, and we do not like to hear that some private institution can create it at pleasure. It conjures up a picture of an autocratic and irresponsible body which by some black art of its own contriving can increase or diminish wealth, and presumably make a great deal of profit in the process.”
Well, yes it does, and with reason, too!
BB
JK Galbraith:
Money : Whence It Came, Where It Went (1975)
The process by which banks create money is so simple that the mind is repelled.
Chapter III, Banks, p.18
In numerous years following the war the Federal government ran a heavy surplus. It could not pay off it’s debt, retire its securities, because to do so meant there would be no bonds to back the national bank notes. To pay off the debt was to destroy the money supply.
Chapter VIII, The Great Compromise, p. 90
So,we assume that Greek life expectancy is higher than that of UK, Germany, US and that was the reason of its economic malaise.
Someone has to explain why Portugal and Irelend are also deep in crisis.Also was their life expectancy higher?
Look about that Spain has similar financial problems and maybe soon it follows Greece, Portugal and Ireland. Even in the USA the debt is very high.
Life expectancy can indicate a country’s longterm stability and wellbeing. Our Life Assurance industry studies these figures but you can access the tables on Google which are produced by the CIA, no less.
It appears that parallels with Greece may also be seen with the economies of Portugal, Ireland and, to a lesser extent, Spain but it is easy to imagine that Ireland may have its own methods of dealing with its debt problems.