The agreement reached between the Greek government, the eurozone authorities and private bankers has been hailed as a turning point in the economic crisis.
The Greek media proudly called last week’s agreement the “biggest ever orderly debt restructuring operation in world history”.
According to French president Nicolas Sarkozy, “a page in the financial crisis is turning.” And Germany’s finance minister Wolfgang Schauble pitched in with, “Greece has today got a clear opportunity to recover.”
All this hype is unfounded. The vast majority of Greek people will gain no benefit from this deal.
It’s true that some will be better off. If you’re a banker the deal includes a long list of sweeteners.
US economist Nouriel Roubini described “30 billion euros for upfront cash sweeteners on the new bonds that in effect guarantee much of their face value”. He talked of “loans of at least 25 billion towards recapitalising banks in a scheme that will keep those banks in private hands”.
Roubini added, “The reality is that most of the gains in good times were privatised while most of the losses have now been socialised.”
Compare this with the fate of pensioners. The Bank of Greece supervises pension funds. It made sure their reserves were invested in government bonds that are due a 53.5 percent “haircut”. These funds will receive no sweeteners. So pensioners face a new round of cuts on top of the 15 percent they’ve just lost.
The Greek pension fund system has been “reformed” three times in recent years—in 2001, 2008 and again in the last two years. Each change has increased the retirement age, and eliminated special arrangements for women and people working in unhealthy conditions. Each has also reduced benefits paid out—even to people who had finally got to retire at 67.
So much for the claim that Greece is in trouble because it delayed “reforms”.
Back in 2010 the International Monetary Fund and the European Union predicted that the recession in Greece would lessen in 2011 and the that country would recover in 2012.
Newly released official figures show that the recession actually deepened last year.
Unemployment passed 20 percent—and among young people it reached more than 50 percent. There is no official estimate about when, if ever, unemployment will fall back below the one million mark breached last year.
What about claims that Greece may be suffering but the rest of Europe has been saved from contagion? Many commentators say that the Greek deal will have a calming effect on the markets.
But it took an injection of one trillion euros by the European Central Bank (ECB) to “calm” the Spanish and Italian bond markets. Banks can borrow at 1 percent interest from the ECB and make huge profits. And they can keep interest rates below the 7 percent level considered unsustainable for these countries.
Even this is temporary. There is no guarantee that bankers will continue to refinance Italian or Spanish state debt. They may well prefer to use these cheap funds for more profitable speculative investments—for example in emerging economy stock markets.
The Egyptian stock market rose 48 percent from the depths it had plunged to following the fall of former dictator Hosni Mubarak. Why should greedy bankers settle for a mere 4 or 5 percent return when they can go “forever blowing bubbles” that may give ten times as much?
Greek state debt started to grow in the 1980s when a reform banned the Bank of Greece from lending directly to the government. It decreed this should be the preserve of private bankers.
The minister responsible for that reform was a technocrat from the World Bank. Today the ECB is banned from lending directly to governments and technocrats are still saying this will discipline eurozone countries into “healthy public finances”.
The Greek experience points the other way.
Panos Garganas is editor of Workers Solidarity, Socialist Worker’s sister paper in Greece. Go to www.ergatiki.gr