Greece bailout: A new stage in world economic crisis
Richard Moore
Europe Unifies to Assist Greece With Line of Aid
http://www.nytimes.com/2010/04/12/business/global/12drachma.html
What it means, from WSWS:
Nothing has been resolved. Instead, the insolvency of major banks
has been offloaded onto national governments, producing an unprecedented
sovereign debt crisis that can easily spread from so-called peripheral
countries such as Greece to major powers, including France, Britain
and the US.
http://www.wsws.org/articles/2010/apr2010/pers-a12.shtml
Emergency bailout plan for Greece: A new stage in world economic
crisis Stefan Steinberg
12 April 2010
The economic crisis precipitated by the crash of Lehman Brothers
in 2008 is entering a new stage, as European states hastily organise
their first-ever bailout of a member of the European Union. The
frantic efforts at the weekend to cobble together a European rescue
package for Greece in collaboration with the International Monetary
Fund came after intense pressure from rating agencies and intensified
speculation by traders betting that the Greek government would
default on its debt obligations.
The European emergency plan for Greece represents a substantial
reversal of the deal agreed at the EU summit just two weeks ago.
At their meeting in Brussels at the end of March, European heads
of state agreed to a proposal pushed by the German government aimed
at avoiding a bailout of the Greek economy. At the summit, the
German delegation, led by Chancellor Angela Merkel, offered a
guarantee to the Greek government on condition that it pay punitive
rates of interest for the repayment of its debt, while making clear
that any assistance would be given only as a last resort.
The position imposed by Germany was tantamount to declaring that
Europe would not offer Greece terms any more favourable than those
currently available on the international financial markets.
The object of the harsh conditions demanded by Germany was to
maximise pressure on the Greek government to continue its program
of severe spending cuts and austerity measures, aimed at convincing
the banks to offer Athens credit at a more favourable rate. Germany
also wanted to send a clear signal to other highly indebted European
countriesSpain, Ireland, Portugal, Italythat there would be no easy
money from Brussels.
These calculations have been blown apart in the space of two weeks
by the intensification of the crisis, which has forced European
finance ministers to come up with an emergency package designed to
appease the international banks and hedge funds. Faced with the
collapse of the Greek economy and the potential breakup of the
European currency, the German government has reluctantly signalled
its acquiescence to the European plan.
Last week, Greek financial officials travelled to Washington to
urge US banks to buy Greek bonds. The social democratic government
of Prime Minister George Papandreou appealed for help as an emerging
market, stressing that it could rely on the countrys trade unions
to suppress working class resistance and help impose the austerity
measures.
It got a cold shoulder from Wall Street. Papandreou then held a
series of meetings with European officials aimed at developing a
safety net for the Greek economy.
Following an explosive rise in interest rates on Greek government
bonds, peaking at well over 7 percent on April 8, the Greek stock
exchange suffered a panic selloff, with Greek bank stocks falling
precipitously. One Greek newspaper spoke of the Athens markets Black
Thursday, while the Independent newspaper declared that the Greek
financial crisis had gone nuclear.
Thursdays selloff extended to most European stock markets. Fearing
a full-scale financial panic and a concerted attack on the euro
currency, European Central Bank President Jean-Claude Trichet
declared that the EU would not allow Greece to default.
The stock market decline was accompanied by an emerging run on Greek
banks by worried depositors. This was on top of a growing movement
of funds out of Greece by the countrys wealthiest layers.
At the same time, the Fitch rating agency cut Greeces long-term
foreign and local currency ratings to BBB- from BBB+. It also slashed
its credit rating for five banks, including the National Bank of
Greece. According to one commentator, the downgrading of Greece on
international money markets now puts it on a par with Iraq.
France and Italy issued a call for an emergency package to head off
a Greek default. After talks with Italian Prime Minister Silvio
Berlusconi on Friday, French President Nicolas Sarkozy announced
that the EU was ready to implement an aid plan for Greece.
In a manner reminiscent of the flurry of meetings that occurred on
the eve of the Lehman collapse in September of 2008, government
heads, finance ministers and bankers worked frantically to come up
with something that could be announced prior to the opening of
global markets Monday morning.
The main details of the plan as reported to date involve a loan of
30 billion by the EU at interest rates of around 5 percent. Such a
rate is below the 7 percent currently being demanded by banks for
long-term Greek bonds, but much more than the rate paid by Europes
biggest economy, Germany (3 percent).
Pointing out that the future of the euro was at stake, billionaire
investor George Soros told Bloomberg Radio on April 9 that the
Greeks have to be given some help from Europe or the IMF at
concessional rates. It is a make or break time for the euro and its
a question whether the political will to hold Europe together is
there or not.
The decision to bail out Greece has far-reaching economic and
political implications. First, it sets a precedent for other European
economies in a similar situation to appeal for financial assistance
from Europes stronger economies.
The fact is, however, that all European nations, including the
biggest economies, Germany and France, are saddled with huge state
debts and are seeking to impose their own harsh austerity programs
in order to recoup the huge sums spent bailing out their respective
banking systems. The banks, which received trillions in public
funds, are now dictating the terms by which the European working
class is to pay for the crisis.
The emergency plan for Greece will bring no relief to the working
population.
A similar EU-IMF plan has already been imposed on the small EU
member state of Latvia. The Latvian government has imposed the
harshest austerity program in Europe, consisting of cuts amounting
to ten percent of the countrys gross domestic product. The state
has slashed the wages of public servants by up to 45 percent, raised
taxes, cut pensions and child allowances, and now has the highest
level of unemployment in Europe at over 20 percent.
The ruling elite throughout Europe are united in their determination
to ensure that the entire burden of the crisis is shifted onto the
backs of the working class, but as the economic crisis increasingly
spirals out of control, national state interests and rivalries are
increasingly coming to the fore.
Commenting on the growing divisions between Germany and its European
neighbours, Financial Times columnist Martin Wolf commented recently:
Is there a satisfactory way out of the dilemma? Not as far as I can
see. That is really frightening.
Two things, in particular, have become clear from the developments
in Europe of the past two weeks. First, the talk of a global recovery
from the crisis that erupted in 2007-2008 is without serious
foundation. The world economy remains poised on the knife-edge of
a new financial panic and even deeper recession.
Nothing has been resolved. Instead, the insolvency of major banks
has been offloaded onto national governments, producing an unprecedented
sovereign debt crisis that can easily spread from so-called peripheral
countries such as Greece to major powers, including France, Britain
and the US.
Second, there is no prospect for a coherent internationally agreed
strategy to manage the crisis in a non-disruptive and peaceful
manner. Instead, the fundamental contradiction between world economy
and the nation-state systema contradiction intrinsic to capitalismis
asserting itself with increasing virulence. Germanys aggressive
stance and the growing divisions within Europe are among the most
acute expressions of this global development.
These developments underline the urgency for the progressive
unification of Europe through the united, revolutionary mobilization
of the working class, based on a socialist program for the
nationalisation of the banks and major industries under the democratic
control of the working class.
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