Modern Greek Tragedy : A Greek Lesson in Democracy

Blog Entry : NOT The Wall Street Journal

By A. Grundrisse

Posted November 4th, 2011

The 1 % and the Global Financial Interests won another victory today as Greek Prime Minister George Papandreou abandoned his call for a referendum by the Greek people on whether to accept the severe austerity program required by the banks and the European Community. Mr. Papandreou’s rapid reversal of his call for a referendum, issued only Monday, is an unequivocal victory for the Banks and loss for the Greek people; it is also a testament to the predominant power of the Banks and provides a concrete indisputable answer to the question of whether we live in a plutocracy or a democracy.

Mr. Papandreou reversed himself after traveling to Cannes, France to attend the G-20 meeting and meet with the leaders of the European Community. French President Nicolas Sarkozy and German Chancellor Angela Merkel wasted no time using what the Bloomberg news service referred to as “hardball tactics”, acting in effect as capos on behalf of the International Banking Mafia. The WSJ put it this way: “Mr. Papandreou received a dressing-down from European Leaders. German Chancellor Angela Merkel and French President Nicolas Sarkozy piled pressure on the Greek premier to stick to the bailout plan.” Sarkozy insisted that Greece “would not receive one more penny of aid”, even aid already promised and agreed to, until it capitulated and cancelled the proposed referendum. Allowing the Greek people to vote on or even have a direct say in the most important economic and social policy of their lifetime was a risk the dominant financial forces simply could not afford to take.

Mr. Papandreou for his part is quoted in the Wall Street Journal as saying : “If the opposition comes to the table and accepts the (bailout) agreement, then there is no need for a referendum.” According to that same WSJ article, Antonis Samaris, the leader of the main opposition party said “he would support Europe’s latest bailout deal with Greece, under which the country must deepen its austerity measures…” The most likely scenario now calls for new elections shortly for Greece, but no referendum. Instead Greek voters will have the honor of choosing between, on the one hand, the present governing party, the Socialists, who back the European debt deal, and on the same hand, the leading opposition party, the conservatives, who also back the bailout plan. There is no other hand. True opposition, of course, would be opposition to the system itself, and that cannot be countenanced. Needless to say international stock markets rallied strongly on these positive developments, positive for the financial system that is, negative for the actual people.

The Banking and Finance community was apoplectic over the mere possibility that the Greek people would reject the carefully crafted plan that had been worked out in secret meetings between the representatives of the big Banks and the political leaders of the European countries. The Banks had gotten everything they wanted by holding primarily the French and German political leadership hostage over the possibility of their insolvency and the ensuing economic chaos that would engulf the leading countries of Europe. The Banks agreed to take a write down on their Greek debt to be sure, but not to fair value levels as established by the market, and they would not have to value their other sovereign debt positions at their fair market value either. Meanwhile any ensuing Bank capital shortfalls would be covered by their respective countries, that is by their countries citizens, and if that country’s economic resources were insufficient, by the European community as a whole. The whole thing constituted a massive bailout to be sure, but not a bailout of Greece or the Greek people, who now face years if not decades of austerity and declining standards of living and quality of life, -- a likely never ending cycle of austerity, budget cutbacks and declining GNP. Declining GNP, of course, simply makes the debt burden ever more unmanageable, requiring further austerity and further budget cutbacks which, in turn, generate further declines in GNP. The Agreement does however constitute another massive bailout of the banks, perhaps one step removed, who once again evade any responsibility for their reckless and boundless avarice in the rabid pursuit of profit and Return on Equity. Mr. Papandreou’s referendum, in the birthplace of democracy no less, threatened to upset the carefully balanced resolution reached by the Banks, the European Political leadership and the multilateral finance institutions like the ECB and the IMF which exist solely to preserve and protect the Banking Establishment. Mr. Papandreou’s proposal for a referendum survived less than two days and occasioned a degree of agreement and unanimity among the usually fractious European leadership never manifested previously.

The proposed referendum was potentially devastating to the European Banks and the global financial system. Had Greece voted “No”, it would have reduced the value of the European Banks’ Greek debt holdings to pennies on the dollar. It would have forced a declaration of default, and required payment on all of the so-called “default insurance” swaps related to the Greek debt, which this agreement being characterized as strictly voluntary does not. All this in turn would have severely threatened or even rendered insolvent French, German and Spanish Banks and thrown the global financial system into chaos and disarray greater than that seen in 2008.

Less Americans enjoy a moment of schadenfreude at the foibles and impotence of the European Community in the face of the greatest financial crisis of our generation, let me remind them that we are in it up to our eyeballs. For example, American Money Market funds, where so many have money stashed, have enormous amounts of money invested in the short-term debt of French and German banks. Any unraveling of the European Economic system would severely impair the value of that debt, and force these funds to “break the buck”, resulting in losses for millions of Americans and American institutions. Furthermore, the IMF will likely contribute significantly to the effort to clean up whatever mess is left behind, and the US is the largest participant in the IMF. Finally the Federal Reserve has committed to swapping dollars for euros with the European Central Bank to an unlimited extent. As the WSJ pointed out in an unusually understated way, under this arrangement “there is serious counterparty risk to the Fed.” In fact, there is unlimited counterparty risk. This unconscionable and arguably truly treasonable commitment by the US Fed was made without any Congressional Hearing by people who are never subject to elections, and constitutes another profound example of the complete subservience of democracy to the requirements of the banking interests in critical situations, i.e. whenever it really matters.

Had it held a referendum, Greece could have decided, as Iceland did, simply not to pay foreign creditors. Furthermore any Greek action could have set a precedent for troubled Spain or Italy to follow, and given those countries far more leverage in negotiations with the EEC ( really the Banks of the EEC). The lesson is crystal clear : Democracy is fine so long as it serves its function as an effective illusion and as profoundly powerful propaganda. When it has the potential, however, to threaten the existing financial system, it must immediately and incontrovertibly be put in its place. On Wednesday it was.

Of course, this is not the end of matters. As soon as January, Greece will need another tranche of economic aid from the European Community to pay its debt bills. The EC will no doubt require further austerity as a condition of further financial support. This process is likely to go on indefinitely. Eventually, however, Greece will find its backbone, stand up and say “όχι περισσότερο”. Sarkozy and Merkel are just cynically hoping to kick the can down the road past their own re-election campaigns scheduled for next year. The problem is that this particular “can” is filled with financial nitroglycerin.