The EU mob seeks revenge against Greece

July 8, 2015

Lee Sustar explains why the European authorities and International Monetary Fund are determined to keep squeezing Greece despite the momentous "no" vote.

CALL IT imperial revenge.

In the wake of Greece's overwhelming "no" vote against austerity measures demanded by European authorities in exchange for financial support, the European Central Bank (ECB) has pushed the Greek banking system deeper into crisis, while European Union (EU) officials continue to press Greece for deeper cutbacks and concessions.

As this article was being prepared for publication, a meeting of Eurogroup ministers ended with a new take-it-or-leave-it ultimatum for the Greek government: Agree to the measures demanded by the creditors or "face a banking collapse, a humanitarian emergency and the start of an exit from the single currency," as the Guardian summarized. So unless Prime Minister Alexis Tsipras satisfies the extortionists by ignoring the "no" vote, leaders of the EU will meet this weekend to plan how to push Greece out of the euro.

Germany and the other big European powers apparently prefer to risk a Greek exit from the 19-member eurozone rather than retreat even minimally from their demands for austerity. Their greater fear is that Greece's resistance could inspire and inflame similar sentiments to challenge Europe's rulers in Spain and other countries.

Eurogroup President Jeroen Dijesselbloem (right) with Chief Executive Officer Klaus Regling
Eurogroup President Jeroen Dijesselbloem (right) with Chief Executive Officer Klaus Regling (EU Council)

As a Wall Street Journal editorial put it, "The danger is that...voters elsewhere in Europe will conclude there's no reason to accept difficult economic reforms if creditors always capitulate." The editorial's concluding sentences warn of "populists [who] hope a Syriza negotiating victory will erode political support for the supply-side economic reforms they have long resisted on ideological grounds. The greatest threat to European prosperity--and the integrity of the eurozone--would be allowing them to succeed."

And so the Journal and the banksters it speaks for are determined that Greece, whose economy has already shrunk by a catastrophic 25 percent, should be made to pay an even bigger price to ensure "European prosperity"--which, in reality, means prosperity for those at the top, while the rest of the continent's population suffers stagnating living conditions at best, and impoverishment and destitution at worst.

EVER SINCE SYRIZA won the January 25 parliamentary elections in Greece and formed a left-wing government, the ECB has been strangling the Greek banking system--specifically, by limiting the amount of Greek government bonds it would accept as collateral in exchange for providing a line of credit to the banks. This was a naked attempt to pressure the government into knuckling under to the EU program.

Now, with uncertain economic prospects prompting many Greeks to withdraw money from their bank accounts, the ECB has seized the opportunity to hold the Greek financial system to ransom, keeping a tight limit on lending and increasing the cost of accessing that money.

Meanwhile, leaders of the EU like Jeroen Dijsselbloem, president of the Eurogroup finance ministers, and Jean-Claude Juncker, president of the European Commission, continue to insist that the Greek government accept terms that are little different than what voters just rejected. These include an increase in the retirement age and a sharp cut in pension benefits, a big spike in the value-added sales tax, and further privatization of state-owned enterprises.

"I take note of the outcome of the Greek referendum," Dijsselbloem said in a statement after the Greek vote last weekend. Like a well-dressed crime boss whispering his last threats before sending in the thugs, Dijsselbloem added: "This result is very regrettable for the future of Greece. For recovery of the Greek economy, difficult measures and reforms are inevitable."

Tsipras has promised to use the overwhelming "no" vote as leverage to get a better deal at the negotiating table with European officials. But a July 7 summit in Brussels between the new Greek Finance Minister Euclid Tsakalotos and his counterparts in the EU failed to produce any deal.

"It's not a matter of weeks any more," German Chancellor Angela Merkel, in Brussels for a meeting on the Greek crisis, said later that day. "It's a matter of days."

THE INTERNATIONAL Monetary Fund (IMF) is continuing to crack the whip on Greece, too. Although the IMF has differed from European authorities by calling for a write-off of part of Greece's long-term debt, it has been just as relentless in demanding that Greece make good on its multibillion-dollar payments due in the short term. Greece defaulted on a $1.7 billion repayment due to the IMF on June 30.

A few months ago, it appeared that the IMF--traditionally the voice of Washington on global financial questions--might take a more conciliatory approach toward the SYRIZA-led government than the EU. President Barack Obama had called Tsipras to congratulate him on his election victory in January--and told reporters following the election: "You cannot keep on squeezing countries that are in the midst of depression. At some point, there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits."

But in the months since, Obama's operatives in the IMF barely even tried to play the soft cop before bullying Greece. At one point, IMF officials, after demanding cuts in the Greek pension system and a weakening of labor laws and regulations, made a big show of walking out of negotiations and flying to their headquarters in Washington.

The IMF's tactics are too much even for Dominique Strauss-Kahn, who headed the IMF when it concocted the original Greek bailout in 2010. In a paper titled, "On Learning from One's Mistakes," Strauss-Kahn--disgraced by scandals related to sexual assault and prostitution--said that Greece needs debt relief: "Providing more assistance to simply repay existing official creditors is simply inane."

The IMF's tough stand on Greece could be interpreted as another example of the Obama administration practice of promising one thing and doing another. But it's also possible that the administration--overwhelmed by its foreign policy catastrophe in Iraq, the escalating conflict with Russia over Ukraine, and its halting "pivot to Asia" to confront the rising threat of China--isn't willing or able to expend political capital to impose a solution to the European debt crisis. Whatever the reason, Washington's hands-off approach has left the IMF to act as a debt collection agency for the European banks--the French ones in particular.

The IMF is headed by Christine Lagarde, the former French finance minister. French banks--like their counterparts on the continent--are supposedly shielded from Greek debt by the 2012 bailout agreement signed by a previous Greek government, which left nearly two-thirds of Greece's international debt in the hands of European governments and the European Financial Stability Facility, which was created by the Eurogroup countries.

Even so, there's no telling what kind of impact a Greek debt default would have on European banks. Economist Morris Goldstein insists that last year's ECB "stress test" of the big European banks are "simply not credible" because they used an unreliable measure of how much capital the banks have available compared to loans.

According to Goldstein, had a more stringent standard been used, several big European banks--including Germany's Deutsche Bank and Commerzbank, along with France's BNP Paribas and Société Générale--would have failed the stress test. "When it comes to fixing the long-running undercapitalization of Europe's banking system, what European authorities have delivered will not be enough," Goldstein wrote.

YET DESPITE the banks' lingering weaknesses, European authorities are apparently willing to roll the dice on a possible "Grexit"--an exit of Greece from the euro currency.

Why is the EU risking at least financial turmoil, if not catastrophe? For German Chancellor Merkel, the threat of a banking crisis in Europe is a lesser evil than the ability of Greece to resist the new European imperial hierarchy centered in Berlin.

Germany, which struggled to assimilate the former East Germany after the fall of the Berlin Wall in 1989, is today the economic colossus standing astride the economy of the entire continent. Germany boasts a current account surplus--the balance sheet for the total flow of money, goods and services across borders--of nearly 8 percent, an unheard-of amount for an advanced country.

There are two main reasons for Germany's success. First, the euro trades for much less on world currency markets than Germany's old currency, the deutschmark, would today, which makes German exports cheaper. And second, the eurozone has produced a downward pressure on wages and a weakening of industry-wide union contracts and other labor protections.

Together, these give Germany a tremendous competitive advantage, both within the EU and in comparison with the U.S., China and Japan.

Given Germany's ascendency, it might seem absurd that the economy of Greece, a small country of 12 million people that accounts for just 2 percent of Europe's gross domestic product, could possibly matter that much to the big powers of the EU. While Greece's $270 billion debt is vast for a country of its size--it's nearly twice the country's annual GDP--it ought to be manageable in the EU's $15 trillion economy, which is larger than that of the U.S.

But amid stagnant economic growth in most European countries, successful resistance in Greece could inspire an anti-austerity opposition elsewhere, threatening establishment political parties that are discredited by their support for disastrous measures.

At the top of the list is Spain, where the anti-austerity Podemos party has helped to form left-wing governments in some of that country's most important cities. With national elections looming in Spain, Germany is all the more determined to preserve the status quo across Europe--no matter what the cost borne by the people of Greece.

That's why the EU, the ECB and the IMF--the "institutions," as they're often called--demand that Greece capitulate to their main demands for austerity. They may try to draw Tsipras into negotiations and offer some face-saving concessions. But overall, the institutions will press forward with demands for severe austerity.

And if the Greek government's refusal to go along leads to a Grexit from the euro, the European officials will try to make that process as painful as possible--in order to discipline Podemos and other political forces that may consider a similar course.

What happens next depends not on deals at the negotiating table, but on the consciousness, organization and struggle of the Greek working class--and on the solidarity that can be built for Greece among working people and the left in other countries.

The Greek capitalist class, having once again openly embraced austerity by supporting a "yes" vote in the July 5 referendum, now stands politically exposed. In these circumstances, the conflicting interests between Greek capital and Greek labor will lead to further sharp conflicts. For example, the nationalization of the banks under workers control and the occupation of factories that close may soon become urgent necessities to keep the Greek economy going.

The "no" vote on July 5 was overwhelming evidence that Greek workers are opposed to enduring further suffering for the sake of creditors. It also marked the beginning of a new phase in the struggle for an alternative.

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