Remarks on the National Bankruptcy of Greece

[Translated from GegenStandpunkt: Politische Vierteljahreszeitschrift 1-10, GegenStandpunkt Verlag, Munich]

For public experts it is no mystery why this member of the European Union on the southern periphery went broke. The country — in fact, just about all of its inmates — “have been living beyond their means.” Citizens pay no taxes; politicians do not even try collecting them. The money they need for governing they pick up in Brussels by cooking their books, they use it to pay pensioners, teachers and other public employees, and maintain an economy that consists mainly of graft and the typical southern leaning toward lethargy… This is roughly the way one is supposed to imagine how the country has been managing things for twenty years. The first part of the message is that in the midst of Europe, habits have implanted themselves among the rulers and the people down there — artfully concealed so that no one has noticed — that go against just about everything that is allowed in the European Economic and Monetary Union and is the rule among all the other members of the “euro family.” Secondly, this makes it clear that it’s definitely no accident this state is bust. It’s simply an alien element in the union of Europeans meeting its proper fate, after tempting it with its outlandish, if not criminal machinations…

This is not quite fair. First of all, nobody in Europe was ever terribly deluded about the practices of Greek budgetary policy. When the Union was founded, the intention was that a rising world power should annex a nation on the southern periphery and make it politically stable and reliable by incorporating it according to the rules of the acquis communautaire, the entire body of legislation of the European Communities and Union. These overriding political reasons made it unnecessary to be too meticulous when examining the Greek budget for its compliance with the convergence criteria — as with other countries too, as one now hears. Secondly, it may well be that business and politics work a bit differently in the land of the Greeks compared to other nations of the European Union, especially the higher rated ones. But this does not make Greece and its crisis some kind of un- or extra-European special case. After all, Greece indisputably happens to be a member of the European Union.

The bankruptcy of Greece is, as far as the country itself is concerned, the price it is paying for joining the European Union including the Monetary Union, and for meeting the resulting demands on its national economy.

Like every member of the European Economic Union, Greece joins this club with great expectations for the progress of its own nation. It has hopes that by bringing its own business location into the “single market,” it will foster its own economy, give it access to the big European markets, and conversely itself be considered an interesting sphere of investment by strong financiers. It wagers that with the fall of political barriers to competition between business locations, it will make more of its own economic inventory — state enterprises, shipping companies, agriculture — and especially that the country will be supplied with the capital it badly needs for the intended “modernization.” Its expectations seem to be merely confirmed by the aid the Union promises for readying a business location. After all, the leading operators of the European Economic Union officially acknowledge that a local economy first has to be made able to compete in their Union so that the country is entitled to moneys for compensating its “backwardness” from the “Cohesion Funds,” “Structural Funds,” and so forth.

So a regular flow of money from the EU is used to modernize its Greek member. Unprofitable state enterprises are privatized; roads, bridges and airports are built; further development funds are used for measures to increase productivity in agriculture. There is no lack in infrastructure for capitalistic growth in the country — only that growth itself does not come about in the way expected by the political managers of the business location. Domestic production does not hold out against free competition with the financially strong companies from Europe’s model states, with their global corporations and potent Mittelstand (mid-sized) firms; exceptions prove the rule. After all, companies that set the standard for productivity and profitability within the Union and beyond its borders are aiming to do anything but remedy the lack of capital that their Greek competitors are suffering from: they ruthlessly exploit it to their own advantage and conquer with their superior capital size the market that is being opened up to them. As far as agriculture is concerned, the second hope the Greek state bases its calculations of success on — here, too, Greek farmers do not bear comparison with financially stronger competitors from Spain and Italy, who use the aid from the European Union only to expand even further their lead in productively exploiting people and nature. And then, on top of all this, the war in the Balkans dashes all Greece’s expectations of capitalistically opening up and utilizing new markets next door. So as a member of the EU, the state continues to administer the lack of capital its business location struggles with. Apart from the money that merchant shipping and tourism business brings into the country, the state itself is the only economic agent of any importance, acting as employer, customer, and distributor of subsidies, and thus advancing to the position of being its citizens’ most important source of income.

Nor does Greece resist the next offer it is given for continuing its career as a member of the European Union. Joining the European Monetary Union means giving up the sovereign handling of that material whose accumulation is all that matters in a national economy, and thereby also giving up many a liberty that a state takes as the creator and guarantor of its society’s money when arranging its budgetary and debt policy. But in return for the commitment to meet certain criteria for its national budget in support of the supranational ambition to ensure the stability of the new money, at least one thing is being offered: if only all the sovereigns that are invited to join the Union subject their debt and business-location policies to this stability-based common ambition and put up with the control regime of a European Central Bank when managing their business locations, then they will all have the same stable and therefore good money to operate with. This program is also tempting to those in charge of the national budget in Greece. All at once, they are not only rid of all their problems with a notoriously weak currency that, on the one hand, does indeed perform all monetary functions domestically but, on the other hand, continuously loses value at the same time and in comparison to other currencies. Above all, the euro also gives them direct access to that sphere of business where drachmas have played an extremely marginal role: as a euro location, Greece is just as interesting for the business of the big European financial capitalists as all the others are. If they find business in euros worthwhile, the Greek bit of the euro zone will also become a business sphere for banks and money traders and capital will come into the country.

The Greek state, at any rate, places all its bets on its joining the euro zone, including the imposed measures to limit the inflation rate, budget deficit, and public debt having the desired effect, and on being able to make use of the EU’s capital market as a source of finance for its capitalistic progress; and in one respect it is not disappointed. Greek public debt also begins to enjoy the credit that is guaranteed by the pan-European economic area; in this country, too, domestic banks grow and foreign ones open branches, making money on all the financial deals being made at this business location. A boom in the financial sector is the first important item to be reflected in Greek growth figures. A second is in the category of services, which is opened up after a wave of privatizations and the successful sale of ports, telephone companies, refineries, shipyards, casinos, and coastal strips to foreign investors. But apart from that, there is still nothing doing when it comes to growth in the productive sector of the economy. Even under the euro’s direction, Greece fails to develop into an attractive investment sphere for foreign capital to pursue business from there, which would thus strengthen the economic basis for the state’s money dealings. Instead, the big European retail chains just use the increased solvent demand to do what their line of business commands: they exploit it for themselves with their unbeatably cheap offers, and finish off whatever is left of traditional small companies and traders.

After a decade of euro economy in Greece, the head of the central bank takes stock of the advantages the country has had from its membership in the Monetary Union by enumerating the disadvantages it should expect if it opted out of this Union. According to him, the euro saves Greece from dire consequences:

The advantages of continuing membership in the euro club that the man enumerates are symptoms of the inability to compete on the part of Greece’s national economy. If, when faced with the alternative of its own new credit money based solely on its national economic clout, the only question that matters is what devaluation rates would have to be expected in comparison to the euro currently used as the national currency, how much more interest would have to be paid to give a new drachma at least some kind of exchange rate, and what disproportionate amount of such money would have to be spent to allow the nation to buy the imports it lives on — then the country is definitely not experiencing any accumulation of capitalistic wealth that provides the people with a livelihood through their exploitation, and supplies the nation with international purchasing power. If a higher interest burden for the budget would threaten to take away indispensable “resources” for capitalistically productive business areas, then such productive sectors exist only as a state project — that is, they don’t. If the transition to its own currency would make the nation’s euro-denominated debt burden increase immeasurably, then the country has long since got itself into a level of debt that its economic power is definitely not up to. The whole result of the years-long participation in the single market and the Monetary Union is a heap of credit that the country would never have been able to afford with its old drachma, but can actually allow itself as a recognized euro debtor — and that cannot be justified in any way by the national capitalism the country has brought about with it.

Yet this disproportion alone is not the reason why the Greek debt mountain has now been found to be unsustainable.

II.

The bankruptcy of Greece is, in terms of the current reason for it and its imperialistic importance, the first price the financial sector is charging the euro states for their efforts to rescue it, and a first “oath of disclosure” regarding the irresolvable contradiction of the Monetary Union and its money.

The code of budgetary discipline that the euro states committed to in a special Stability Pact for maintaining the quality of their money has been suspended by the leading European nations with regard to themselves. Not formally or officially, of course, nor by accounting tricks, as the Greeks are being accused of, but plainly and simply in practice. Their banking and financial system is so “systemically essential” to them, and rescuing it seems so unconditionally necessary, that, for them, all the finely balanced relationships intended to guarantee the soundness of both their old and their newly issued debts simply do not apply when it comes to the funds they shower on banks to let them continue business Even if it is sometimes only guarantees that the states provide, and the sale of some cheaply acquired blocks of shares will “put money back into the public purse” — vast amounts of euros have already flowed into the ailing sector’s bailout. How much will still be needed for the same purpose in the next while is unknown, and is therefore the next object of huge concerns in terms of stability policy, which are intensified by the fact that the expensive stimulus packages for the “real economy,” which is caught in the crunch together with the financial sector, have not produced the desired effects. Not only the European Central Bank and its various national branches then express grave fears for “the future of the euro,” and not only the business editors at newspapers speculate about when to expect the first wave of inflation and how big it will be. First and foremost, the business people themselves, who are being rescued at such expense, are starting to recalculate, on the basis of these data, the risks of the business they want to make money on, and are definitely supposed to make money on in order to further the market-economy-based common good. And it is their calculations that are crucial: how they project their investments in euros in comparison to other speculatively assessed risks and set them against projected returns, and what decision they make on the basis of their speculative calculations, whether and to what degree — which they can even quantify with “risk premiums” — they are prepared to continue trusting the stability of the supranational money: all this is what determines in practice the answer to the concerned question about its future. And a small partial answer is currently on its way: the critical assessment of Greece’s national debt is forcing the country to declare bankruptcy, this being the first manifestation of the speculative examination of the enormous masses of credit that the big euro states have created for rescuing the financial sector and their money, an examination by this very financial sector.

The finance industry is testing its own confidence in the sustainability of the euro credit bloated by the states, and it does so in suitably discriminating fashion — just as the construction of the common currency dictates. It assesses government debts — which are all denominated in equally hard euros and therefore recognized by the European Central Bank (ECB) — by the ability of the state issuers to vouch for them solely with the means of their own national economies, without any revenue sharing with their competing partners. The assessment of this ability of the euro states to meet their financial obligations, and of the risks that might stand in their way or could arise in the future, is done by rating agencies. Professional methodologists of the speculating trade know how to weight the relevant data and indicators by all the rules of the profession that makes a profit from trading risks. They publish the results of their meta-speculation in the form of telling strings of letters, and, in an instant, the practitioners know the current creditworthiness of the debtor whose papers they have in their hands: if it is worse than the other day, the risks are higher and the debt certificates worth less, and vice versa. In the case of Greece, two of these institutions have decided to reassess — downward — everything they previously assessed as proof of a high-quality debtor, including the capitalization of future, regular income from lottery, motorway toll, airport fees, and the like. The reason is not at all that the country excessively bloated its state credit to bail out its banks; according to experts, Greece’s banks are decidedly healthy, whatever that may mean in this business world, at any rate not as affected by the financial crisis as their big competitors in the rest of Europe. The country’s undoing is the indicator relating to the proportion between already accumulated, newly issued debts, on the one hand, and capitalistic growth, which must ultimately justify the mountain of debt, on the other: this disproportion is significantly higher in Greece than in the rest of the euro zone; this accordingly increases the “residual risk under adverse economic conditions” (Standard & Poor’s) — and all of a sudden this state has its financial crisis.

The crisis affects the state as a creator of fictitious capital, in that it not only has to pay its creditors more than before for their diminished confidence in its power to pay back its bonds at a guaranteed high yield; it is actually questionable whether the minister of finance will even be able to pull off the soon necessary debt conversion, that is, the issuance of new bonds to pay for loans that come due. For this requires the participation of creditors, who at the moment are seriously doubting whether Greek euro bonds are still a good deal.

Finance companies, especially from the EU partner countries with plenty of capital, which until recently were investing remarkable sums in the billions in the Greek budget, and capital markets altogether, which are soon supposed to go for Greece’s new bonds, face a difficult decision. Either they again bet billions on the issuer’s solvency despite all the well-founded doubts in it, thereby permitting the old loans to be replaced by new, bigger ones; or they refuse to deal with government debt in this otherwise usual way and thereby bring about the insolvency of the Greek state, disclosing the nullity of the corresponding bonds, which are actually an important item in their portfolios. This alternative is crucial, not only to the business of many creditors; the amounts to be either carried forward or eliminated, if only because of their size, make the thing pretty “systemically relevant” again. But the Greek financial crisis is most definitely “relevant” particularly because it affects the euro club as a whole and its money in general.

The reason being that the source of this money is the credit business throughout the euro zone — in no small part the business in government debts. Their soundness, the sustainability of the fictitious capital answered for by the sovereign powers, is the crucial basis for the financial markets’ esteem of the credit money put into circulation as money capital, and thus for its rank in the competition of currencies. A crucial part is played by the central bank in charge: by guaranteeing the redemption of government bonds, the ECB certifies and vouches for the quality of government debts, i.e., for their rank as a sure source of liquidity, and at the same time for the quality of the money it issues and financial dealers use for their business, i.e., for this money’s justification by sound, fictitious capital. The speculation against Greek bonds — officially put in the right by a lower rating by the authorized agencies, which fuels it all the more — presents the ECB with a truly “systemically relevant” decision. It can adhere unblinkingly to the recognition of meanwhile doubtful Greek bonds as a euro source. In practice, this would mean prolonging the reduction to a lower rating of its quality requirements for readily redeemable government bonds beyond the scheduled date at the end of 2010; a measure it introduced to make it easier for the EU powers occupied with bailing out their financial sector to finance their “exploding” debts, and from which especially Greece is now profiting with its downgraded debts. Or, the ECB withdraws its recognition of this fictitious capital as a source of liquidity, thereby in practice depriving both the speculation and the Greek budget of their foundation. In the first case, it runs the risk of the financial world’s critical judgment of Greece’s debts turning against the good euro with which it honors such dubious bonds; especially since it is already altogether questionable how good the money still is that the big euro powers are using in such enormous amounts to finance merely the aversion of a financial crisis, but in no way to finance a corresponding growth spurt. At best, Greece would continue to have credit, while in the worst case the European Central Bank would lose its own credit with the financial markets that are supposed to make use of its money commodity. If it instead decides to stop recognizing Greek government bonds, then the central bank risks the insolvency of that state, with all the consequences for the monetary capital assets based on it. Even though it would have proved how serious it is about the creditworthiness of the state powers whose credit instruments it guarantees to redeem, it would have watered down this guarantee itself — by making it dependent on the judgment of the financial world in the form of the acknowledged rating agencies, and thus devaluing it in a pretty fundamental way.

For the club of euro states, this quandary presents itself as a definitely most unfortunate alternative. Either they grant Greece the credit it is losing with the business world, thereby saving the state from bankruptcy — and violating not only further and more harshly the restrictive regulations of the Maastricht stability pact intended to ensure the euro’s stability, but also the basic rule of the Monetary Union, namely, that to preserve the fiscal sovereignty of its members, including the consequence that no country may be held liable for the debts of another, each one is responsible for its creation of credit, so that anything resembling a revenue sharing between participants is ruled out. Or they demonstrate how adamantly true they are to the principles laying down the strength of the common currency and the autonomy of national budgetary policy, the core of national sovereignty; the partners leave Greece to its financial crisis — thereby risking not only a destruction of fictitious capital, which would endanger their entire credit system again, but also risking Greece’s bankruptcy and thus the paralysis of political rule over part of the Union’s territory.

It is basically clear that the second alternative is out of the question. But it is quite unclear how the first can be realized without dissolving the foundation of the monetary club; and this gives a most acute practical effect to the incurable contradiction characterizing the EU in general and its common currency in particular.

— Sovereign states are operating a common domestic market, i.e., a cross-border competition of capitalistic companies in which the ones that are strongest by strictly market-economy criteria are meant to prevail, unhindered by special national conditions. With their successes and the defeats they inflict on weaker competitors, the victorious companies compose the economic map of the Union. At the same time, each state is operating this pan-European free-for-all with its autonomous means to the benefit of its national business location and the revenues it draws from it. The fact that some parts of the EU budget are dedicated to the aim of evening out national and regional business-location disadvantages does not nullify this contradiction between transnational competition and national economic accounts; instead, the Union thereby ends up supporting the brutal sorting of the continent into successful and unsuccessful locations of capital brought about by unleashed competitive activity.

— Following the same pattern, the euro partners are administering, not only the transnational competition of capital, but also a common credit money. They are all liable for it — formally all in equal measure — with their debts and the growth they bring about with them in their own domains. In terms of growth, each euro state does what it can to make its business location return high capitalistic yields — and in just this way they all challenge each other’s yields from the accumulation of capital in their big pan-Euroland, the yields with which they vouch for their debts and the common money. With their competition against each other, they reduce to absurdity the premise on which their common credit money is based, namely, that each nation guarantees the stability of this money on an equal ranking with all the others and with an equivalent ratio of debt to growth.

The common financial crisis is sorely trying this fiction, since the financial sector is subjecting the unproductively expanded euro credit as a whole to stricter speculative examination and testing how reliable its national sources are. Speculators have got their teeth into Greece. And the fact that they are thus laying bare the contradictory nature of the entire construction is admitted de facto by leading euro-politicians when they openly express their fear that allowing one member to go bankrupt would inevitably lead to the bankruptcy of a few candidates coming next. For that means nothing other than that several members have lost the ability, as a result of their years-long competitive efforts, to support the jointly used credit money with their credit.

III.

In order to ensure the continuance and further functioning of the euro system, the leading powers of the Union deny with might and main the politico-economic substance of the Greek financial crisis. It is necessary to convince “the markets” that Greece’s bankruptcy is an isolated lapse and can be cleared up by better budget policy. The Greeks are assigned the impossible task of making their state creditworthy again through pauperization.

With the danger of the deteriorating basis of the common credit-money going bust, it is clear to the leading powers of the Union what direction their efforts to cope with the situation must take. They resolutely insist that it is Greece that is failing, and attach the greatest importance to proving that this is solely due to the negligence of proper budget management that Athens is guilty of. This must be only a special, exceptional case, which has absolutely nothing to do with any defeats in intra-European competition which Greece is of course not the only one to suffer from; nothing less than the basic lie of the Monetary Union is at stake. So for the moment, it is certain what is needed for rescuing the member about to go bankrupt:they must demonstrate and convince “the markets” once and for all of their will to forthwith make no more mistakes in accounting and budget management and to do everything as correctly as was stipulated when the common currency was founded. In the eyes of the leading politicians of the Union, this promise — to heed stability when using debt for business or face penalties —functioned, until Greece went down, as a credible substitute for a guarantor power behind the euro credit, and as proof that the euro had an indisputably sound basis in the credit-financed growth of the partner countries and therefore also in their securities. Hence, a credible new staging of the guarantee for stability, which gave the euro its decade-long successful course, should again be able to eliminate all mistrust in the quality of the money that has made itself felt on “the markets.” Those in charge then provide the corresponding signal addressed to them: the Greek government is put under EU control, as it were, obligated to pass laws to restructure its budget, and checked for whether it punctually implements and adheres to them. “Budget discipline” and “austerity” are the maxims dictated to the Greek national leadership “in order to safeguard the financial stability of the euro zone as a whole” (statement of the EU Council, February 11, 2010)

The solution the EU is aiming at here is fairly paradoxical: Greece is supposed to become capable of answering for the debts that it is admittedly not up to, and of reliably vouching for each euro of fictitious capital it has issued; and the way to achieve this is, of all things, to slash its budget, i.e., to deprive the nation’s economic life of everything the state hitherto used to stage something along the lines of business and capital growth. The Greek state must give up the freedom to correct anything when it comes to the lack of competitiveness of its national economy, and to mobilize funds for that purpose; the country’s business life is being programmed to shrink according to the state’s budgetary position; this, of all things, is supposed to fix the disproportion between the financial capacity of the business location and the accumulated total debt of the state, and not only some day when things are better, but in such a way that the entire accumulated heap of long irredeemable credits maintains its value up to the last euro, or, against the mistrust of the markets, is given value again — not by growth, but by the decimation of public borrowing.

This is absurd. But what matters to the EU for the moment is not so much to tally successes, but rather to credibly demonstrate the absolutely uncompromising will of the Union to subject Greece to a pretty brutal austerity policy in order to thereby scotch all speculation against the euro. This includes, however, the other clear signal to the speculator community, namely, that the Union will not let the basis for its credit money be ruined by pure speculation driving one of its members to bankruptcy. This guarantee for survival of Greece’s high-debt budget must of course be given again in such a way that nobody will doubt the unshakeability of the clause that each country must ensure stability at its own expense and there will be no bailout; otherwise the euro states’ debt management would immediately be suspected of being unsound and the euro in danger again. The risk of the whole euro construction having to be declared bankrupt, which Greek debt has made acute, must be cleared up by the example of Greece; through a “drastic cure” whose exemplary severity will convince financial markets that when the partners rescue Greece’s credit, as will nonetheless be inevitable sometime and somehow, this will not affect the strength of the euro.

The practical implementation of this complex program for warding off all anti-euro speculation prompted by Greece turns out to be as banal as it is brutal. Everything the country and its inhabitants hitherto used for survival in this state has to be sacrificed in order to give the government debt the semblance of unequivocal sustainability and thus avert damage to the common credit-money.

The Greek government has to prove itself up to this task, and some doubts have been expressed as to whether it will succeed. Not as far as its will is concerned: the government in Athens agrees that everything it has to do in the higher interest of the EU is also in its own interest. But there is concern about the people. They have settled into the poverty typical of the country but without readily putting up with every measure their rulers imposed on them even long before going bust and quite without an express command from the EU. Greece is said to have strong trade unions, which can carry off a general strike that brings down the country for a few days; even communists — just imagine! — are still making trouble there. And a lot of people, in no small part led by leftists, protest against speculators and EU politicians blackmailing the country.

First of all, this country has laid itself open to “blackmail” of its own accord. The state has taken advantage of the speculation on its euro debts for financing its budget; it has banked on the power of the EU as a means for new economic and political clout. With its nationalistic perception of Europe as an opportunity for national advancement, Greece made itself dependent on those it now thinks are treating it so badly.

Secondly, the state is letting itself be “blackmailed” because its officials, now more than ever, consider their national opportunity to lie in exactly that: in the dictates of the EU’s austerity commissioners which are supposed to rescue its credit, and in financial markets, whose agents are demonstrating what stuff they are made of. Speculators would rather risk ruining their own business foundation than pass up business — because they assume, and can be quite relaxed about assuming, that the governments they are speculating on would rather decimate their people’s means of survival than allow the foundation for financial capital’s business to be jeopardized.

Thirdly, a modern democratic state power lets itself be “blackmailed” by all interests to which it concedes the rank of objective constraints, i.e., which it makes into such; but definitely not by its people. This is simply because a people has anything in mind but to blackmail its rulers — much less with the unscrupulousness that the true beneficiaries of true sovereign nationalism show. This also applies to the protesting Greeks: it is far from their minds to stop providing their own government with its foundation. On the contrary, they are protesting for their nation, which has made itself so nice and dependent on the EU and euro speculation. They put a big equal sign between the country’s current plight and the increasing distress the government is announcing for its people: everyone, whether they be pensioners, day laborers, or head of government, should stand together as Greeks against the foreign blackmailers. This kind of popular protest is nothing but a patriotic notice of readiness: if it serves the common good, we are ready for any sacrifice.

Those in charge need do nothing but translate the programmed emergency and pauperization measures properly for their people to understand.

P.S.

There is apparently no need to do much translating for the German people to understand. The free-speaking leaders of the country’s democratic public opinion have only to let loose a few diatribes about Mediterranean laziness, and their audience is already taking sides. As far as the matter at hand is concerned, they are for the cause of their bosses, business leaders, speculators, politicians and EU rulers; and as far as the idea is concerned, they are against “the Greeks,” who do not deserve anything better than proper pauperization. Such a combination of nastiness and ignorance apparently helps a good people better endure what their bosses do with them in order to prevent things from getting to the point reached in Greece.