Greek Financial Crisis Continues to Grow: Big Debate Over Bail Out or New Paradigm

Written by on July 1, 2015 in Bankers & Wall St., Government with 0 Comments

As latest developments spur anxiety in a nation crushed by debt, critics rail against Troika’s attack on democracy and destruction of Greece

Supporters of the NO vote in the upcoming referendum hold a banner with colors of the Greek flag reading ‘’NO, OXI’’ during a rally at Syntagma on Monday. (Photo: Aristidis Vafeiadakis/ZUMA Press/Corbis)

Supporters of the NO vote in the upcoming referendum hold a banner with colors of the Greek flag reading ‘’NO, OXI’’ during a rally at Syntagma on Monday. (Photo: Aristidis Vafeiadakis/ZUMA Press/Corbis)

Update (8:15 AM EST):


As the Council of Europe, the EU’s top human rights body, on Wednesday ruled that a Greek referendum scheduled for this Sunday falls short of international standards and steep speculation circulates that Prime Minister Alexis Tsipras, scheduled to address the nation shortly, may actually cancel the vote, all eyes are on Greece on Wednesday as the acceptance of a bailout agreement for the struggling nation may now once again be in the offing.

Related Article: How German and French Banks Helped Bankrupt Greece

Responding to news that Tsipras may announce his willingness to accept a slightly altered agreement with foreign creditors to extend a bailout program for the struggling nation, leftist politicians in the country were quick to express outrage. As the Guardian‘s Helena Smith reports:

Before Alexis Tsipras has even made his much anticipated address to the nation – explaining the details of the proposal – the country’s communist party has described the deal as “the worst bailout” ever.

“They are shamefully fooling the Greek people. This proves that their ‘no’ is in fact a ‘yes’ to new loan accords that go against the people,” the party’s leader Dimitris Koutsoumbas railed in a statement. “We will cancel all of this,” he said referring to Sunday’s referendum. “We will say no to the memoranda [bailout accords], yes to resistance.”

The anti-capitalist bloc, Antarsya also issued a blistering attack on the government, saying whatever it was called the accord amounted to a third bailout that would further impoverish Greeks. “The negotiations of submission between the government and the troika have to stop now,” said the far left group adding that the time had come to break with the European Union and write off the country’s debt altogether.

“The no [that we will say] to the troika’s black proposal for a new heavier round of bailout pillaging, is at the same time a heavy no to the continuous proposals of a government that is continually accepting ever more hard-hitting bailout terms that in reality serve the supporters of yes.”

Both statements highlight just how difficult it will be for the left-led coalition to enforce any agreement that is reached with creditors.

As of this writing, however, it remains very much unclear what Syriza has decided to do, much less how members of the European Commission, the IMF, or ECB will officially respond.

Related Article: The Debt Slavery Must End to Prevent Environmental Catastrophes: Will Greece Kick Start a Paradigm Shift?

However, other outside observers—despite not knowing exactly what the prime minister will say or whether or not it will be accepted by Troika members—expressed more caution.


Earlier:

Greece made history at midnight on Tuesday by being the first European nation to go into default with the International Monetary Fund. And as the high-stakes negotiations continue ahead of a national referendum on Sunday, a growing chorus of economists, civil society organizations, and Greek citizens are making it clear that the same policies that created the current calamity in Greece—namely austerity and the imposition of ever-greater levels of debt—can no longer be trusted to solve the crisis and that a new paradigm is needed.

Even as news broke on Wednesday that Prime Minister Alexis Tsipras sent a new letter to foreign creditors indicating his willingness to accept modified terms for a deal, it remained unclear how much the leaders of the Syriza Party have bent—if at all—in terms of securing a new kind of bailout package from the Troika, comprised of the IMF, European Commission, and the European Central Bank.

While the Financial Times reporting that “Tsipras concedes most bailout demands” was quickly picked up the New York Times and other outlets as evidence that the embattled Greek government was perhaps caving to the outsized pressure, a statement from Athens rejected that interpretation of events.

As the Guardian‘s Helena Smith reports:

“The Greek government yesterday delivered a new proposal to the institutions accompanied by a letter of prime minister Alexis Tsipras. Reports that say the Greek government has fully accepted the institutions’ proposal do not stand,” said the statement, adding that the government’s proposal had included “a series of amendments to the institutions’ text.”

The new proposal was an attempt to find a mutually beneficial agreement that not only gave emphasis to growth but making the country’s monumental debt load viable, the government insisted.

“Several measures that the institutions are suggesting will not be enforced immediately but in stages so that the government can find equivalent measures to replace them,” it said.

Tsipras himself is now expected to address the Greek people (and a world audience) on Wednesday.

As is clear, the fast-moving developments of the situation in Greece make for dramatic headlines, but what progressive critics are attempting to explain is how the complexities of the negotiations are in many ways masking some of the simple truths that underlie the current fiasco.

Related Article: Greece’s Leader Slams IMF For Intimidating Tactics

According to Nick Dearden, who heads the advocacy group Global Justice Now in the U.K., what is happening between Greece and the powerful members of the Troika is nothing less than a battle between the will of the Greek people—who have suffered immeasurably (and measurably) during recent years under the conditions of the bailout program—and the desires of elite and predatory financial forces, who have actively profited from that misery.

“The hardline, inhumane policies of the EU now threaten to provoke a world crisis,” Dearden said in a statement early on Wednesday. “The EU and the IMF seem to be hell-bent on ruthlessly punishing Greece for daring to stand up against grossly unfair debt conditions that are causing enormous amounts of suffering. Refusing to allow a short delay for the referendum to take place is a brutal enforcement of unfettered neoliberalism over democracy and the needs of people.”

What’s needed most, say many experts—as well as the Greek government itself—is actual debt relief and a restructuring of existing loans. As a recent paper from the Jubilee Debt Campaign made clear, the idea of debt forgiveness—modeled on that which was provided to Germany following World War II—should be central to any meaningful progress on the crisis in Greece:

Syriza is proposing a debt conference based on the ‘London conference’ which agreed debt cancellation for Germany in 1953. The 1953 conference agreed to cancel 50% of Germany’s debt to governments, people and institutions outside the country, and the payments on the remainder were made conditional on Germany earning the revenue from the rest of the world to pay the debt. Greece was one of the countries which took part in the debt cancellation.

Syriza is proposing debt cancellation through a similar conference (some have suggested of around 50%, though there is no policy officially stated), with the remainder of the debt to be paid over several decades to ensure that Greece can continue to repay.

The German debt deal in 1953 was very successful. It supported German economic recovery, and gave an incentive for creditors to trade so that they would be repaid.

“This is a crossroads not just for Greece and Europe, but for all countries in debt crisis,” argues Sarah-Jayne Clifton, director of Jubilee Debt Campaign. “Greece is standing up for justice, dignity, sovereignty and basic human rights against a broken financial system that is hurting ordinary people everywhere. We all need debt cancellation for Greece. Not just because it means justice for the Greek people, but to signal to the banks and financiers that we won’t keep bailing them out for their reckless lending and speculation.”

So far, however, Eurozone commissioners have treated debt relief as a non-starter and only said recently they “might” be willing to discuss it in the future after Syriza agreed to yet another multi-year bailout program in exchange for deeper austerity, including further cuts to pensions, additional deregulation and privatization schemes.

For Mark Weisbrot, co-director of the Center for Economic & Policy Research, what is most striking about the behavior of the Troika is how blatantly they are using their financial authority to exert political pressure within Greece. By backing an argument also put forth by Nobel-winning economist and columnist Paul Krugman earlier this week, Weisbrot suggests that elite forces in Europe are now using the financial crisis to force the current government from power.

“There is considerable evidence that this has been the European authorities’ strategy since the anti-austerity Syriza party was elected in January,” explains Weisbrot. “Just 10 days after the election, the ECB cut off its main line of credit to Greek banks, even though there was no obvious reason to do so. Shortly thereafter, the ECB put a limit on how much Greek banks could lend to the government – a limit that the previous government did not have.”

Weisbrot says that from perspective of the Troika, “regime change” in Greece remains the only logical strategy to make sure that those who have stood in opposition to their policies are jettisoned and that submission to foreign authority, no matter the internal damage, returns to the impoverished nation. What’s worse, he writes, is that what Tsipras and his government are willing to accept—and what the nation, in fact, needs to enjoy a return to economic balance and prosperity—is not radical at all.

In addition to debt relief, Weisbrot says the alternative policies which Greece needs are “mostly nothing more than the stimulus policies that dozens of countries, including the United States, implemented in response to the world financial crisis and recession of 2008 and 2009. But European authorities will not allow the Greek economy to recover.”

What Weisbrot concludes is what Krugman and other high-profile economists like Joseph Stiglitz also now believe: Greek voters should say “No” this weekend to further austerity, buck the bullying of the Troika, and take their economic future into their own hands.

However, with the possibility that the referendum could be cancelled, it remains unclear whether Greek citizens will get that chance. But as Stiglitz, along with his Columbia University colleague Martin Guzman, explained in an article written late Tuesday, there remains a better path for Greece than the one put before it by  foreign creditors. Citing the case of Argentina, which more than a decade ago defaulted on its IMF obligations in order to wipe out what it said was an unjust and unsustainable debt burden, Stiglitz and Gusman argue that decision carries important lessons for present-day Greece.

“When debt is unsustainable, there needs to be a fresh start,” they write. “This is a basic, well-recognized principle. So far, the Troika is depriving Greece from this possibility. And there can’t be a fresh start with austerity.”

They conclude, “This Sunday, Greek citizens will debate two alternatives: austerity and depression without end, or the possibility of deciding their own destiny in a context of huge uncertainty. None of the options are nice. Both could lead to even worse social disruptions. But while with one of them there is some hope, with the other there is not.”

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