The Greek crime scene: Who is really to blame for crisis?

June 17, 2012

“If the Greeks had done the right thing, they wouldn’t be in the mess they’re in today.” The argument that the Greek people brought austerity packages down on their own necks keeps getting louder.

Green daily I Kathimerini tied this to rising support for the anti-austerity Coalition of the Radical Left (SYRIZA), which came close to first place in June 17 elections with 26% of the vote, in a May 25 editorial: “[Syriza leader] Alexis Tsipras is right: we can tear up the loan agreement with our creditors and still remain in the euro. And that’s not all! We can get paid even if we don’t work. We can jump from rooftops without getting hurt …

“Tsipras has the same weakness that many of his predecessors had: instead of offering political solutions to serious problems, he prefers to flatter a nation which has always had a penchant for the mortal sins of flattery and deceit.”

Is there any truth to this line of argument?

What would have happened if “Greece” (workers, business large and small, the self-employed and government alike) hadn’t committed the “crimes” of which it is accused by the “troika” of the European Union (EU), European Central Bank (ECB) and International Monetary Fund (IMF).

Crime One: Cooking the books

Greece’s biggest crime in the eyes of EU officials was to manipulate the level of its public sector deficit and debt to meet euro entry requirements.

This was a grave misdemeanor, but one perpetrated by other nations. It is also one for which the clues were disregarded by Brussels.

Jason Manolopoulos wrote in his 2011 book Greece's 'Odious' Debt: “Empire building was part of the agenda: maximising the economic and geographic size of the Eurozone …”

If Greece had not tricked its way into the euro, it would still have gone bankrupt anyway after the crisis broke in 2008.

Take Ireland: it averaged a public sector surplus of 0.6% between 1999 and 2007, yet the crisis set off a rapid widening of budget deficits ending in a lethal rise in the yield on Irish public debt, state bankruptcy and “rescue” from Brussels.

The only action that would have allowed Greece, and other economies “bailed out”, to avoid “rescue” was not in their hands. If the ECB had met the decline in demand for their public debt by buying that debt itself, it would have driven down yields to sustainable levels ― as was done by the Bank of England.

Yet the approach of the ECB has been to threaten to strangle the economy with rising yields on debt to force states to adopt the “reforms” it wants to see ― cuts to wages and welfare and privatisation of public assets.

Crime Two: Tax-dodging

The talk about a “Greek culture of tax evasion”, most recently revived by the tax-exempt head of the IMF Christine Lagarde, invites the question: which Greeks have been evading tax?

Tsipras is in no doubt. He told the May 28 Der Spiegel: “We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it.”

The evidence is everywhere. The Greek shipping industry, the country’s main income-earner, pays no tax.

In February 2010, an “anonymous Greek banker” quoted in the Financial Times said: “I'm reliably informed that exactly six Greeks declared more than a million euros in income last time anybody counted.”

The Tax Justice Network calculates that well-off Greeks hold 20 billion euros in Swiss bank accounts. Its November 2011 survey said total revenue lost in Greece due to tax evasion was 22.7 billion billion, about 40% of expected tax revenues for 2012.

That amounts to 143% of interest payments on its public debt for this year.

Tsipras responded to Legarde's claims: “Greek workers pay their taxes, which are unbearable.

“For tax-evaders, she should turn to Pasok and New Democracy [previous coalition government partners] to explain to her why they haven't touched the big money and have been chasing the simple worker for two years.”

Crime Three: Allowing external imbalances

Excessive government deficits and tax shortfalls are seen by the troika as part of a more serious Greek crime ― allowing “external imbalances”.

The 2011 OECD Economic Survey of Greece said “the external imbalances that the current adjustment program aims at correcting are symptomatic of the shortcomings of macroeconomic management over the past decade”.

By 2008, the Greek current account deficit had become a huge “external imbalance” equal to 14.9% of GDP.

The current account deficit, which measures the shortfall of the country’s income from exports and investments abroad as against its payments for imports and to foreigners investing in Greece, is balanced by the inflow of funds from other economies.

It also equals the “savings-investment gap” of Greek businesses and households (-10.4% of GDP in 2008) plus the government budget deficit (-4.5% in 2008).

However, this accounting formula tells us nothing about what’s causing what: a rising current account deficit can be driven by falling exports, rising imports, rising capital inflows, a declining savings rate, a rising budget deficit, some or all of the above, as well as other factors.

Starting in 1996, the overall Greek private sector savings rate began to fall. The government made an effort to raise tax income to reduce the budget deficit for euro entry. Financial deregulation also made bank funding more available to Greek borrowers.

As well, when the euro was introduced, interest rates in Greece fell close to German rates at a time when rates worldwide were already very low.

The result was a global credit explosion. Like their counterparts in the US housing market, the banking multinationals of Germany, France, Holland and Luxembourg rushed to lend to southern Europe and Ireland.

Between 2000 and 2008 Greek private debt skyrocketed from 58% to 119% of GDP, the annual rate of credit growth to households reached 30% and annual foreign investment inflows rose from 4.9% of GDP to 12.8%.

The fall in interest rates in Greece, a country where savings traditionally earned above 10%, lead to a turn from saving to borrowing.

The flood of credit boosted internal demand, growth and imports, a pattern common to the whole eurozone “periphery”. The mirror image was that the “surplus economies” of the eurozone north, enjoyed an export-led boom fed by the cheap credit their banks were urging on the south.

In 2007, the German current account surplus reached 7.4% of GDP ― greater than China’s. Its trade surplus with Greece more than doubled. Greece’s trade deficit, already 14.6% of GDP in 1999, rose to 19.2% by 2008.

This party could continue while Greek growth (at more than 4% from 2001-2007) exceeded the interest rates being paid on its debt. But the virtuous circle turned vicious in 2008, when northern European banks began to turn off credit in response to their exposure to the US financial crisis.

As a result, growth slowed and the gap between growth rates and interest rates disappeared.

Greek firms struggled to service their debt, while northern banks were increasingly reluctant to lend or even to hold onto the stock of Greek debt on their books.

The end result is that northern European creditors have now accumulated 2 trillion euros in assets matched by 1.4 trillion euros in liabilities for Spain, Greece and Portugal alone. Such is the real “external imbalance” in Europe.

Crime Four: ‘Living beyond our means’

Where did “Greece” spend these billions? Is the problem, in the words of Nikos Dimou in the June 7 Der Spiegel, that “we like to live beyond our means … have everything, enjoy everything”?

True, unlike in Ireland and Spain, where lending went primarily into real estate, in Greece it was biased towards consumption. This grew strongly after 2000.

Yet the debt-fuelled component of the consumption boom wasn’t the work of the 50% of Greek households that hadn’t borrowed. Dimou’s “we” were primarily the Greek capitalists, rich and professional classes, drivers of a spending orgy on the back of climbing asset values.

The other fat Greek consumer was the military: with the largest defence budget as a percentage of GDP in Europe, 5.6% of the Greek current account deficit between 2000 and 2008 was due to arms imports. (Note, too, that 15% of German and 12% of French arms exports go to Greece.)

The conclusion, then, is clear: the attempt to frame Greece on the four charges above is nothing but the “stop, thief” tactic of the real thieves. These are:

The multinational, mainly Northern European, banks. Even such a heavy “player” as Mohamed El-Erian, CEO of superfund PIMCO, has said: “Greece’s private creditors were more than happy to pour money into the country, only to shirk their burden-sharing responsibilities when the artificial boom could no longer be sustained.”

The European institutions, ever-sensitive to the imperatives of European big capital and its goal of forging a Europe that can compete with the US and China.

Greece’s capitalists and its wealthy elite, world leaders in conspicuous consumption and tax evasion.
The corrupt Greek state and its two main parties, New Democracy and PASOK.

Greece is the country in Europe where the people are most being squeezed to pay off the trillion-euro gambling debts of the financial kleptocracy. The struggle of its people against this “odious” debt is the struggle of us all.

[Dick Nichols is Green Left Weekly’s European correspondent, based in Barcelona. A more detailed version of this article, complete with sources, will appear on Links International Journal of Socialist Renewal.]

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