Croesus Pyre urn – if only his money were available to the Government in Athens right now and not burned up…
A few thoughts from watching Greece…
If one sixtieth of the population turns out on the street (e.g. marching against the Iraq war), our recent experience in the UK is that this is not sufficient for our government to change its policy.
There are riots, anti-cuts camps etc. in the streets of Athens. The Greek Prime Minister has sacrificed his Finance Minister for someone that the Daily Mail tells me is “a populist” whose biggest achievement to date was delivery of the 2000 Olympic Games along with the crippling expense and squandered legacy that when with them.
But will the Greek government change its policy requiring more austerity measures?
I very much doubt it.
For much the same reasons.
There is understandably a lot of news coverage of the unpopular measures that the Greek government is going to need to take in order not to default and thereby avoid a financial crisis worse than 2008.
Much of the coverage has chosen to put the street protests in Athens in the context of the “Greece as cradle of democracy” story.
The question is whether the Greek government can or should decide that they don’t need to make the cuts being talked about (including 20% cuts to services and jobs in the public sector). Given there is already 16% unemployment, this scares an enormous number of people there. According to Professor Peter Morici, writing in UPI:
Greece is slipping from a liquidity crisis into downright insolvency. Bond investors are demanding yields 20 percentage points higher on Greek debt than on comparable German debt. Rolling over existing bonds, as those come due, will be prohibitively expensive and the collapse of Athens’ finances seems inevitable.
But even if not inevitable, could Greece just be allowed to declare itself bankrupt? Could it default, if it were the will of its people?
This is where the difference between democracy and sovereignty comes into play.
Wikipedia defines democracy as:
a form of government in which all citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal (and more or less direct) participation in the proposal, development and passage of legislation into law. It can also encompass social, economic and cultural conditions that enable the free and equal practice of political self-determination.
There are concepts that sit alongside democracy, such as the rule of law and moral behaviour codes which require the honouring of commitments undertaken.
Wikipedia defines sovereignty as:
the quality of having supreme, independent authority over a geographic area, such as a territory. It can be found in a power to rule and make law that rests on a political fact for which no purely legal explanation can be provided. In theoretical terms, the idea of “sovereignty”, historically, from Socrates to Thomas Hobbes, has always necessitated a moral imperative on the entity exercising it.
While ancient Athenian democracy was direct democracy (open to all men who had done their military service, but not to women, slaves, freed slaves, resident aliens etc.), modern democracy is generally representative democracy, with decision-making passed to elected representatives of the people on the basis of the greatest number of votes gained at democratic elections.
While the United Nations requires only that a State is sovereign by having effective and independent government within a defined territory, modern states are – needless to say – a bit more complicated than that.
Money is behind much of the complexity. The money required for a state to operate is equally international, with each country’s balance sheet containing in addition to its citizens taxes loans from the private sector and other purchasers of gilts and bonds.
In a democracy, sovereignty is granted to the government by the people and actions are carried out by the government in their name.
But countries can be seen to give over some of their ability to act independently (sovereignty) to their financial creditors – the added finance available to the country being for the general benefit of the people of the nation.
Greece’s position as a sovereign nation is also in the twenty first century inter-connected world context. In addition to the national we also have supranational (e.g. EU and euro) and international (e.g. UN, IMF) layers of governance, providing us with both responsibilities (defence, finance, market access, honouring of commitments) but also support (financial, market access, political and military). This is made contractual through Treaties – pooling of sovereignty granted by the people to the government shared with others at supra- or international levels for the general benefit of the people of the nation.
The question is that old point of “no taxation without representation”. In a bailout situation between states, it is not only the taxpayers of Greece who have a legitimate interest in how Greece handles its debts but the taxpayers of the countries providing the help via the IMF and the Eurozone… welcome to the complicated world we live in.
So who can legitimately tell a country what to do is indeed a bit more complicated.
There is talk of just “letting Greece default” and cutting Greece loose from the Euro.
This is not something to be flippant about. While a Greece-with-Drachma could devalue its currency against others in a way that Greece-with-Euro cannot, Greek default could cause a shockwave across the economy in the way that Lehman Brothers collapsing did.
If the Greek government were to default, it would not only be Greece that was affected – in taking money from others, Greece is part of an inter-related global political and financial system.
Nor would it only be Eurozone countries affected – French, German and American banks in Greece’s market and with Greek government gilts and bonds would be hit directly. This would affect the network connections between banks (that’s the way in which banks hold national debts, lend to each other and buy and sell loans).
And while Eurozone countries would be hit because of the common currency they have with Greece and the money they have put up to keep it afloat, it would also because of the inter-relatedness of their economies.
If Greece has its debt restructured (i.e. it pays out on its debts at less than 100 cents to the euro), Eurogroup leader (and Luxembourg Prime Minister) Jean-Claude Juncker has already warned of the contagion effect and potentially bleak prospects for Portugal, Spain, Ireland, Italy and Belgium. Greek debt restructured would be the mark-to-market of other European countries’ national debts. And as Norman Lamont pointed out a couple of days ago on Radio 4 – it would beg the question whether a Euro in Ireland, Portugal etc. was worth the same as one in Germany – and when that happens the Euro itself fails. No sensible person could want that.
While the UK is not part of the Euro, we are also bound into this. The UK has loaned money to the Greek government – we’ve already done so as part of our IMF responsibilities and would have to do so again. It’s part of the deal in our pooled sovereignty at international level. And in case we are telling ourselves we should just think national, we ourselves have had an IMF loan within my lifetime, so it is part of our international role and responsibility. The wider interconnectedness of international finance means our banks and our pockets would be badly hit by a destablised Euro.
That said, it seems the £95bn loan last year didn’t help because the cuts hit any prospect of financial growth and the markets don’t want to loan money to Greece. Evidence of this is that Greek government bonds are already at 30% return rates (compared with 3% for the UK and 5% for Spain).
It remains to be seen whether throwing more money (another £196bn?) is enough to tip the balance or simply good money after bad.
But is there anything else that can be done?
In May 2011 at a conference in Lisbon hosted by Left Block and GUE/NGL, Unitarian Left at the European Parliament, French researcher Benjamin Coriat proposed an alternative to IMF bailouts:
- the European economy should “break with financial markets”, imposing “conducting audits on public debts so that can be identified who owes and what owes and so we would see that after all creditors have to pay more than borrowers“;
- The “European Central Bank must buy government bonds on the primary market in order to lower interest rates and leave the rating agencies out of the game”;
- This would be accompanied by establishing a fair and balanced tax base in order to “reverse the counter-revolution” in which the rich get tax breaks;
- there should be changes to macro-economic coordination in Europe towards achieving a balance between the centre and the periphery because “Germany can not only take the benefits of Europe and leave the disadvantages to the others”.
But this is in the realms of fantasy – and I can only assume that there were neither Germans (who are pretty annoyed with bailing everyone else out) nor anyone with a grasp of the sums of money involved in actually doing any of that in the audience?
Realpolitik also suggests that if the Euro is not seen to be functioning brilliantly, politicians are unlikely to want to grant more powers to the ECB.
Are there any other ideas out there? Well, if Greece were a company, others would be sniffing round to buy it up at a bargain price rather than bail it out with the current management. But happily for democracy, the crossover between capitalism and politics has happily not gone this far yet!
Anything else? American (and some German) economists propose a strong-economy Euro (e.g. Austria, Finland, Germany and the Netherlands), cutting loose weaker economies (e.g. Belgium, France, Greece, Italy, Portugal and Spain) for the good of all. I can’t help thinking that one would go down particularly bad with the French…
But one thing is clear – the Greek government cannot give in to the street protesters.
Well, of course they can – but they’d need to think through the global consequences of doing so.
But if the street protesters want to change the government for another, democratically via the ballot box, that is of course their right. Storming the parliament is not the way to do it.
But in a democracy, sometimes what is for the best for the people overall is not what is going to be popular.
Sometimes we have to elect people to do what we individually could not.
And honouring our international obligations matters, whether we’re debtor or creditor on the ask.