Before the Greek Debt Crisis, Karl Heinz Roth

Apr 10th, 2013 | By Zero Books Editor | Category: Extract

From Greece: what is to be done? – A Pamphlet

In the spring of 2012, the euro crisis intensified dramatically. The epicenter of the crisis is Greece, a country that has been experiencing a severe recession since the beginning of the world economic crisis. What outcome this recession will yield is a decisive question not just for Greece, but for all of Europe and indeed for the entire world economy. We need therefore to consider the story behind this crisis, and the restructuring programs imposed, since May of 2010, by the so-called “troika” (the European Commission, the European Central Bank and the International Monetary Fund). We also need to consider possible alternatives to these restructuring programs.
In 1981, Greece became a member of the European Community. A spirit of optimism prevailed in the country. The Socialist Party (PASOK), an offshoot of the Pan-Hellenic Resistance Movement against the 1967–1974 military dictatorship, had won the parliamentary elections for the first time. Due to its welfare-oriented platform, PASOK enjoyed widespread popular support.
As the conservative Karamanlis government stepped down, there began an era of social, cultural, scholarly and economic progress. This trend was in no way affected by the monetary restrictions associated with the European Monetary System that had been introduced within the European Community in 1979.[1]
Greece was not to join this system until 1993. Like the currencies of the other new southern European member states (Portugal and Spain), the drachma was kept outside the currency agreement. While the intra-European disparities in economic development entailed certain distortions of competition, the Greek government was able to compensate for their effects by periodically devaluing the Greek currency. Thus
there was little pressure to reconfigure Greek economic policy on the model of the European Community‘s core states. Between 1979 and 1992, the drachma was depreciated by 86 percent. In this way, the prices of Greek exports to the European Community’s core states were lowered almost by half. Conversely, the prices of West German and French exports to Greece were increased almost by half.
This monetary and economic approach, favorable to Greece and the other countries of the European periphery, became unviable in 1992. Responding to the pressures engendered by the crisis-ridden development of their own national economies, the governments of the European Community’s core states imposed a new framework, which has gone down in the annals of economic history as the Maastricht Treaty. It was designed to establish the contractual foundations of the European Community’s transition to the European Union. The so-called convergence criteria at the core of the Treaty established parameters for inflation, national budgets, exchange rates and interest rates. They also introduced a cap on annual debt (three percent of the gross national product or GDP), thereby setting the course for the introduction of a single currency, the euro.
PASOK had been re-elected as the governing party in 1993. Its economic decision-makers and planners now found themselves in a squeeze. For Greece as for other countries, implementation of the Maastricht standards entailed abandonment of a policy of full employment that had until then been bolstered by a robust welfare state. The Greek government was forced to begin working towards the flexibilisation of employment relations and the deregulation of the public sector. Officially, it played along and made an effort to improve the public sector ’s economic efficiency. But due to pressure exerted by Greece’s strong union movement, effective deregulation and the lowering of mass incomes were out of the question. It was only in 1996, when the neoliberal Kostas Simitis replaced the deceased Andreas Papandreou as head of government and curbed the influence of PASOK’s previously dominant party left, that the consensus on the welfare state was significantly challenged. If the floodgates were still not opened all the way, this was because there emerged within parliament a stable left-wing opposition that acted in concert with the traditionally influential communist bloc at critical moments. Major strikes and social struggles limited the extent of the welfare and wage cuts. However, Greece’s competitiveness on the European market declined continuously. As a result, the country went from a positive to a negative trade balance and its budget deficit soared. Even prior to the late 1990s, the budget deficit’s annual increase exceeded five percent of GDP, and total debt soon exceeded annual economic growth. These were blatant violations of the criteria stipulated in the Maastricht Treaty, and so the emergent scenario of over-indebtedness was veiled by means of statistical manipulations. By the late 1990s, Greek policy was significantly out of step with the process of neoliberal restructuring that countries such as England, France and Italy had been undergoing since the 1980s, and which was also increasingly evident in Germany and the Low Countries.
Nonetheless, in 2001, Greece was admitted to the eurozone, which had in the meantime been established within the European Union. While it is true the basic statistical data Athens provided to Brussels concealed the extent of Greece’s economic imbalances, everyone involved was aware that Greece did not satisfy the criteria stipulated in the Maastricht Treaty, particularly the Treaty’s budgetary parameters.[2] Why the course was nevertheless set for Greece’s admission to the eurozone is something we will only know with certainty when the relevant documents are made public. Yet we can safely assume, even today, that geostrategic and short-term political goals played a decisive role. Two years after the destruction of Yugoslavia, Greece was a crucial outpost from which to begin integrating the Balkan states into the EU. It also secured the southeastern flank of the EU’s planned “eastward enlargement.” But short-term political goals also played an important role. The Greek Supreme Court had just accepted compensation claims by victims of the German occupation of Greece, and it had declared the confiscation of German assets legal. [3] No one but the Greek government could halt the proceedings. It did so after the German government promised to support Greece’s application for eurozone membership.
From the perspective of the Greek elites at the time, admission to the eurozone was attractive. They were able to instantly abandon their extremely depreciated currency and exchange it for the “hard” euro, which presented them with extremely cheap refinancing options. There followed a period of rapid economic growth, with annual growth rates of between 3.7 and 5.2 percent; this period lasted until 2007. Maritime logistics, the petroleum- processing industry, tourism, construction and banking all flourished. To this were added massive imports of French, German and Swiss capital and ample European Commission subsidies for the development of infrastructure; given Greece’s heightened geostrategic importance, these were considered a safe long-term investment. No one who remembers the Greece of the last century can fail to be struck by the tremendous amount of infrastructural investment the country has seen since then: witness the north-south highway from Thessaloniki to Athens, the west-east highway from the Ionian Sea to the Turkish border in western Thrace (especially important in military terms), the suspension bridge near Patras, which connects the Peloponnese with western Greece, Athens International Airport, the Attica ring road, the Athens subway, the Piraeus container port and the new suburban railways in Athens. To this were added the vast construction projects associated with the 2004 Olympics, which carried the real estate boom to extremes.
In parallel with this, Greece indulged in exuberant military spending. Between 1992 and 2008, the country imported 75 billion euros worth of military equipment, mainly frigates from France and tanks and submarines from Germany. Annual military expenditure rose to 4.3 percent of GDP, more than twice the corresponding figure for Germany. This ramp-up was legimitated by reference to Greece’s “hereditary enemy” Turkey – a NATO member like Greece itself. Turkey had conquered and annexed part of Cyprus in 1974, and its military expenditure was even higher than that of Greece during this period. German and French defense contractors were the laughing third party and the profiteers of this regional conflict. At the outbreak of the current world economic crisis, the two antagonists in the eastern Mediterranean were the foremost recipients of German arms exports: Turkey headed the list with 15.2 percent, followed by Greece with 12.9 percent.[4]
The profiteers of the short-lived euro boom are easily identified. In essence, three closely interconnected sections of the ruling elite divided the spoils between themselves. First and foremost, there were the family clans who own the lion’s share of Greece’s shipping and banking capital, as well as most of its petrochemical industry. During the Simitis era, the business taxes to be paid by them were lowered to 25 percent, allowing them to enrich themselves dramatically during the economic boom. The more liquidity they disposed of, the less inclined they were to pay taxes at all. This led to a remarkable deterioration in the tax compliance of parts of the conservative upper middle class (doctors, real estate brokers, high-ranking bank employees, lawyers). Prior to the outbreak of the world economic crisis, the country’s top 30,000 families held more than 250 billion euros in capital assets. Of these, 100 billion alone were held as bank deposits; at least another 100 billion were transferred abroad.
The second group was represented by people from Europe’s leading capital goods, construction and armament corporations, as well from the European financial sector. These segments of European capital have traditionally enjoyed close ties with the families controlling Greece’s shipping and banking capital. For example, the Latsis clan, which domiciles in Switzerland, is bound up with Deutsche Bank AG and Switzerland’s two major banks; ThyssenKrupp is bound up with the Greek shipbuilding industry; Germany’s and France’s leading construction companies are bound up with the Greek real estate sector; the French and Franco-Belgian banks Société Générale, Crédit Agricole and Dexia control significant parts of the Greek financial sector, via their holding companies and subsidiary companies. It was by way of these ties that the past decade’s major investments in infrastructure were planned and implemented; responsibility for refinancing and hedging the investments lay with the treasury. It was only after the infrastructure boom that the issuing of two-, five- and ten-year government bonds outstripped the analogous lending practices of the eurozone’s other peripheral states.
The third profiteer of the euro boom was the political class of Greece, represented, since the end of the military dictatorship, by the two major parties PASOK and Nea Dimokratia (ND). Following the economic paradigm shift imposed by Kostas Simitis in 1996 and the elimination of the party left, PASOK’s reservations about the major entrepreneurial dynasties, the orthodox state church and the military-industrial complex were dropped. PASOK also entered into an unqualified symbiosis with the ruling elites, especially with regard to infrastructural investment, defense contracts and the refinancing guarantees these inevitably entailed. During the boom period, Siemens alone mobilized some 15 million euros in slush money with an eye to gaining control of the Greek telecommunications provider OTE,[5] influencing the Defense Ministry’s contracting activities and securing for itself the most important of the investment projects associated with the Olympics.[6] But that was only the tip of the iceberg. The European investors’ onetime deposits on the bank accounts of PASOK’s and ND’s leading politicians merely supplemented long-term bank loans. The two parties used these loans both to maintain their apparatus of functionaries and to finance electoral campaigns. The systematic purchase of the country’s politicians and their associated apparatuses of power and propaganda became an integral component of the boom period.
Thus when PASOK lost the elections in 2004 and the ND candidate Kostas Karamanlis became head of government, this was a mere change of label, entailing no more than a shift in the spectrum of favored social groups. As a result of this sort of clientelism, corruption and greed spread through broad strata of society. It is appropriate to speak of a system of social corruption that stalls the development of solidarity and social equality so urgently required today.
The ruling classes’ unbridled enrichez vous already had a serious downside prior to the outbreak of the crisis. At the beginning of the new millennium, Greece developed a consistently negative trade balance. The budget deficit got seriously out of hand, due to the refinancing costs associated with the country’s infrastructural investments. There began a creeping process of deindustrialization, as the country’s relatively high unit labor costs and its continuously declining competitiveness could no longer be compensated for by devaluing the national currency. Greek exports within the EU declined correspondingly. The option of reorienting Greek export policy towards developing and newly industrializing countries was also increasingly unviable, as these countries had themselves become export- oriented low-wage countries that were out-competing Greek products and services. Thus the loss of national sovereignty in the field of monetary policy not only eliminated the compensatory levers of “external” devaluation it also confronted the Greek economy with a “squeeze” situation with regard to trade policy. Greece faced the prospect of being crushed between the export pressures emanating from the core states of the EU, states whose economies are characterized by a high degree of technological development and an advanced organization of production, and the trade offensive begun by the low-wage countries of the global periphery. Unemployment rose markedly. Young high school and university graduates who did not yet dispose of any employment guarantees were especially affected. They were increasingly forced to fall back on the socially unprotected, temporary and poorly paid employment relations that had emerged in the wake of the illegal immigration of the 1990s, leading to the rise of a veritable shadow economy. This development, unheard of in Greece, was increasingly interpreted as a worrisome portent by social science scholars; there was talk of the development of a new “700-euro generation.” The term was quickly appropriated as an identity-establishing self-description by the emergent social movements of young precarious workers and illegal immigrants.