The conventional wisdom is that the world has largely survived the great financial crisis. Journalists and economists talk about recovery, while politicians claim to have averted catastrophe.
However, the bailouts of banks and financial stimulus packages that governments used to “solve” the crisis merely turned banks’ debt into public debt. The problem has simply been shifted to the public sphere and potential catastrophe merely delayed.
The United States, Britain and the “eurozone” (the European countries with the Euro as their common currency) have collectively given the banks more than US$14 trillion since the crisis struck in 2008.
The resulting “sovereign debt crisis” (governments going deeper into debt) raises the question: who will pay for this debt?
For the pro-corporate politicians and experts, whose outlook dominates the corporate media, the answer is obvious: public debt must be paid by cuts to public spending.
Social infrastructure, welfare and public sector wages must be cut, while handouts to business and expenditure on the police and military are exempted as “necessary expenditure”.
However in Greece, an alternative answer has been given by millions of striking workers and hundreds of thousands of protesters in the streets. The Greek people see no reason why they should pay for a crisis they didn’t cause, to save the profits of the big banks and financial speculators.
International financial institutions have singled out Greece as a test case in the sovereign debt crisis.
The government of the social democratic PASOK party agreed to a €45 billion “rescue package” from the International Monetary Fund (IMF) and European Central Bank (ECB), which comes with the requisite harsh austerity measures.
Through the general strikes and militant mass protests against the “rescue package”, workers in Greece have responded that those responsible for the debt should pay. Workers and the public should not pay back money they never borrowed in the first place.
Contrary to media claims, high public debt is not the result of unproductive, over-paid workers or bludgers living off welfare.
At the core of the global financial crisis (of which the sovereign debt crisis is a continuation) is, in fact, the fall in real wages that has occurred throughout the developed world since the 1970s.
A lower wage bill benefits capitalists in the short term, but for profits to be realised workers have to be able to buy things. The result was a debt-fuelled economy — with consumption levels maintained through access to cheap credit.
The multi-trillion-dollar bailout of banks was justified with the claim that the finance industry drives the productive economy, but another key cause of the crisis was that banks found investment in production considerably less profitable than speculating on debt.
Deregulation of the financial system (in line with neoliberal ideology) meant banks could combine and repackage mortgage, credit card and commercial debts, and sell them as “financial products” or “derivatives”.
Debts could be insured against default, and more complicated “derivatives” allowed bankers to bet on which debts would be honoured.
This casino economy collapsed with the “sub-prime mortgage” crisis in the US. Falling wages, skyrocketing house prices and high-interest mortgages granted regardless of likely ability for repayment led to large numbers of US households defaulting on their mortgages.
Suddenly, the market was gripped with a panic that billions of dollars worth of “derivatives” could prove worthless.
The banks were bailed out, but those made homeless by mortgage foreclosures were not. US banks are reporting rising profits again, but a further 7.8 million US householders are facing foreclosure, the March 17 US Socialist Worker said.
On April 29, 15,000 people marched through Wall Street chanting, “You got bailed out, we got sold out!”. The protest, organised by the AFL-CIO trade union federation and a coalition of community organisations, demanded “a tax on Wall Street profits, better regulation of the big banks, help for struggling homeowners and a jobs program for the unemployed”, the May 5 SW said.
The Obama administration has responded with some timid proposals to regulate the finance industry (fiercely opposed by the Republicans) and the prosecution of bankers who engaged in blatantly fraudulent practices.
However, the first case to be prosecuted, involving a hedge fund manager and several bankers from the huge, and deeply unpopular, Goldman Sachs bank, threatens to open a can of worms. This is because blatantly fraudulent practices were the basis of the casino economy.
One of the charges levelled by European Union politicians against Greece is that it hid the true size of its debt since entering the eurozone in 2001.
Ironically, Goldman Sachs helped it achieve this by turning its debt into tradable “derivatives”. Public debt is as good to the casino economy as household or commercial debt.
Moreover, Italy, France and Germany did the same.
By turning Greece’s debt into “derivatives”, Goldman Sachs was able to bet on Greece defaulting in the same way it and other banks had bet on sub-prime mortgage holders defaulting.
Speculation drove a “loss of market confidence” in Greece. Ratings agencies — whose endorsement of dubious banking products helped bring about the 2008 crisis — declared Greece a risk for investors.
Despite its sovereign debt being of comparable size to Britain’s, this “no confidence” vote meant Greece was only able to borrow at above market interest rates.
The PASOK government has insisted it has no alternative to accepting the IMF-ECB “rescue”.
The austerity measures include wage freezes, de facto wage cuts, a 23% goods and services tax rise, increasing the age of retirement and prohibition of early retirement, a €3 billion cut to health and education expenditure and public investment, removing unfair dismissal safeguards for workers, a new minimum wage for youth and the long-term unemployed, and privatisation of state-owned sectors such as transport and energy.
On May 5, with the entire country shut down by a general strike, half–a-million people marched through Athens. Heavy-handed policing led to rioting — which was not reported in Greece because media workers were on strike too.
On May 6, the government passed the austerity package through parliament. The strikes and protests have not abated.
Ordinary people in Greece have decided that, as they did not enjoy the bankers’ winnings in the casino economy, they should not pay for the losses.
Antonis Davenellos, a member of the Greek socialist group International Workers Left, wrote in the May 5 SW: “Tens of thousands of workers thundered, ‘Today and tomorrow, and for as long its needed, we are all strikers’.
“This fury explains the incredible resilience of the demonstrators, who flooded the centre of Athens despite the unprecedented rain of tear gas fired against them by the police ...
“The chants of the revolutionary left were taken up by the overwhelming majority of the demonstrators — for example, ‘Robbers, robbers, capitalists: Your profits cost human lives’.
“Moreover, the social base of social democracy itself — the thousands and thousands of workers who had voted for PASOK — was there ... angrily attacking a government in which they had illusions only a few months before.
“Now they chanted ... ‘Self-illusions are over — either with the capitalists or with the workers’.”