Greece: Bankers bailed out, workers sold out

By Mike Andrew

Greece’s debt crisis came to a head on November 11, when socialist Prime Minister George Papandreou resigned to make way for a coalition “national unity government.”

The new Prime Minister, Lucas Papademos, is a former Vice President of the European Central Bank committed to pushing ahead with the package of austerity measures demanded by European bankers in return for a “bailout” of Greek debts.

This “bailout” properly speaking is not a bailout of Greece, still less a bailout of Greek workers, but a bailout of the German and French banks which invested in Greek bonds and now stand to lose substantial assets if Greece defaults on its debts.

Some 20% of the bailout money Greece receives is slated to go to recapitalize Greek banks, and another 20% must be invested in top-rated AAA bonds that can be used as collateral in future debt-swap deals with lenders.

The austerity program the EU has imposed on Greece is not designed to help Greece repay its debts – or if it is, it is sadly misdirected. In fact, their austerity program is designed to impose the EU economic model which views inflation as the main economic risk.

In an effort to reduce Greece’s deficits and keep inflation below the EU-sanctioned maximum of 2%, the Greek government was compelled to cut wages and pensions, eliminate COLAs, and reduce the number of public sector workers by one-third.

Last year unemployment hit almost 19%, with the rate for workers under 30 going to almost 40%. The Greek economy as a whole contracted by 4.5% in 2010.
If the goal was to reduce Greece’s debt-to-GDP ratio, the austerity program was clearly misdirected.

Papandreou was elected Prime Minister in 2009 on an anti-austerity platform, when the debt crisis was only just breaking.

The right-wing New Democracy Party, which held power from 2004 to 2009, precipitated the debt crisis by cutting income and social security taxes and then cooking the books to conceal the real dimensions of the resulting budget deficit.
Instead of the EU-approved 3% deficit, or the rumored 6% “real” deficit, Papandreou found the deficit was almost 13% when he took office. Unemployment at that time was over 10%.

What made Greece’s situation even worse was that it had joined the Eurozone in 2001, and therefore no longer controlled its own money supply.

Papandreou’s father, the late Andreas Papandreou, who was Prime Minister in 1981-1989 and again in 1993-1996, had brought his country an unprecedented period of economic prosperity by an admittedly inflationary policy – financing public works projects, and wage and pension increases by increasing the money supply.

That option was no longer open in the current crisis, and George Papandreou realized he had no choice but to ask for a restructuring of Greece’s debt, the consequence of which was the austerity package demanded by European bankers.
Papandreou’s seemingly reasonable proposal to put the austerity policy up for a vote was vetoed by Greece’s creditors, including the United States.

The referendum proposal did have one positive result, however. It forced the right-wing opposition into entering a national unity government and accepting shared responsibility for the austerity measures.

The long term future for the Greek economy remains in doubt, as does the issue of whether Greece will retain the Euro or try to return to the drachma, its former national currency.