Socialist Worker

The Greek crisis explained: What is the solution to the debt?

Issue No. 2258

Greece is 340 billion euros in debt—and this could rise by 10 billion euros by the end of the year.

The troika of the EU, IMF and European Central Bank agreed a 110 billion euro bailout for Greece last year, which was supposed to allow the state to pay its creditors.

Why hasn’t the bailout helped?

The massive spending cuts that came with it have wrecked workers’ living standards and pushed the economy further into crisis.

Hundreds of thousands have been thrown onto the unemployment lines, meaning less tax is collected to pay the debts.

Unemployment has doubled to 800,000 (16 percent), while public sector workers have seen their wages slashed by 20 percent and pensions cut by 10 percent.

What is a bond?

Bonds are issued as a way for corporations or governments to raise money.

They are the main way states meet the gap between their spending and their income from tax.

They work like an IOU, allowing governments to raise money with a promise to repay in the future. Interest is paid on the money borrowed until it is repaid.

Bonds are mainly owned by banks, insurance companies, pension funds and other rich investors.

If an economy is in crisis, buyers of bonds demand a higher rate of return.

This has happened in Greece, where investors are worried the government will default and be unable to pay them back.

The country’s credit ratings have been downgraded making it prohibitively expensive for the state to borrow money on the open market.

What would a default mean?

Commentators have said that this could mean a “Lehman Brothers moment” for whole economies. When the Lehman Brothers bank collapsed in 2008 it precipitated the financial crash.

The Greek bailout has nothing to do with helping ordinary people—it is about saving Europe’s banks.

If Greece defaulted on its debts it would cause a deep crisis for French and German bankers, which have been the main lenders to the state.

Britain’s banks would also be exposed to a £2.5 billion loss in the event of a default.

The alternative?

The Anti-Capitalist Left in Greece is pushing for the cancellation of the debt, nationalisation of the banks and workers’ control of the banking system.

The Greek government paid 51 billion euros servicing the debt last year. That could pay for pensions, wages and services.

Many unions are taking up these demands that can begin to solve the crisis on workers’ terms.

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