Tragedy of Greece is a lesson to all

17 February 2012 by Jeremy Corbyn

Greece has been under pressure since 2008, as its debt ratio broke eurozone rules. Cuts were enforced, ratings agencies downgraded the country’s status, interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
on bonds went up, more cuts were made to pay the debts, bigger debts accrued as interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates were ratcheted up again, followed by more cuts. And so the tragic story goes on.

There are a couple of narratives behind this

Unemployment is rising very fast, youth unemployment breaks all records and the cuts in benefits, wages, pensions and supplies to services like hospitals and schools mean the poorest and most vulnerable people suffer the most.
None of those who sweep the streets of Athens, serve in restaurants, teach in schools or work in hospitals caused the issue, but are all paying a price.
For the ordinary people of Greece it is equivalent to workers in a factory who, after a lifetime of toil, find their factory being denuded of workers, jobs and all security, while endless people in sharp suits with laptops demand more cuts and more payments to themselves for helping the company destroy itself.
The initial assertion that Greece was over the fabled debt-to-GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
ratio in 2010 started the round of cuts, followed by the first European loan of €110 billion.
Later in 2010 it received a second loan of €109bn. The next loan is subject to the government making further €350 million round of cuts.

Aside from the brutality of this, two questions emerge

With the massively increased interest rates Greece pays for short-term bonds, who is benefiting and who is paying the price?
Democracy has been cast aside. After winning the election less than two years ago, the Pasok government argued it had to implement the demands of the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
(ECB ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html
) to stay in the euro.
It made massive cuts despite some party MPs defecting and massive street protests.
George Papandreou, a tragic figure of Shakespearean proportions, finally threw in the towel after the ECB said it needed a new government.
Greek Prime Minister Lucas Papademos was chosen by the “independent” ECB.
Although he did succeed in getting Parliament to agree yet another round of austerity in the last week while Athens rioted and burned outside, this apparently is not enough for the sharp-suited financial inspectors.
It must be obvious to them that the whole policy is counter-productive to any human needs. And while they quibble over the details of the cuts, they now question all the rights of the whole country.
The financiers are asking for written guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). from all parties ahead of the elections, that they will continue the austerity packages or the money will not come.
The next logical step is a written guarantee by every candidate to only obey the ECB and not the wishes of the people who are voting for them.
Greece has become a laboratory for the economic orthodoxy of a currency that has no national controlling political process.
During the fevered debates on the Maastricht Treaty, it was the left which pointed out that the euro would impose a straitjacket of monetarist orthodoxy on the poorest people and their economies and that its enforcement would be by an unaccountable central bank.

While what is happening in Greece is tragic beyond measure, it is not new

The brutality of IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
debt terms to African and Latin American economies from the 1980s onward denied the opportunities for many of the poorest to develop in those continents, and paved the way for privatisation and the cheap sale of their precious minerals.
Further back in time, the US invaded Haiti to collect debts for its bankers, impoverishing a proud people who had fought for their independence from France.

Capitalism, debts and loans have a brutal side to them

The people of Greece can only protest and call for solidarity. All their services are being decimated, their young people suffering in ill-equipped schools and loss of job opportunities. National assets, publicly owned services and state land are all being sold to multinational companies in the name of “restructuring.”
Greece is a warning to the other most indebted euro economies, Spain, Portugal and Ireland, but also a lesson in what the banking arm of capitalism can and does do.
The left in Europe needs to think very fast. There are hardly any left-of-centre governments and those that have implemented the diktats of the ECB have paid a heavy price - ask Pasok supporters.
The way back for the left is not to please the bankers but to control the juggernaut of the finance system of Europe.
The ECB has brutally enforced its banking stability measures and has no obligation or requirement to maintain welfare, health and vital public services or employment.
A socialist alternative is needed to put the needs of people ahead of the banks - and it needs to be developed across Europe.
The tragedy of Greece is not a one-off but a warning and a lesson.


Jeremy Corbyn is Labour MP for Islington North.

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