A tale of grasshoppers and ants
Yanis Varoufakis “Certainly, the crisis is being borne on the backs of the ants, but the ants are not concentrated in the north, nor are the grasshoppers all to be found in the peripheral countries. Grasshoppers and ants are as common in Greece and Spain as they are in Germany, in Holland and Portugal, in Austria or in neighbouring Italy. What characterises the ants is that they are workers and labourers, both before and after the crisis and that the grasshoppers are exploitative animals, speculators and the corrupt, who took advantage of the bonanza of the bubble which they created, and are now busy privatising their gains and socialising the bad results of their excesses on the backs of the ants.”
Aesop’s fable has served as the allegory for the neoliberal matrix. “Once upon a time in the Eurozone there were hard-working ants concentrated in the north and lazy grasshoppers singing in the sun in the south, until the crisis occurred’’. In this tiresome virtual reality ‘all’ of the peripheral nations are grasshoppers and ought to be punished for their idleness. We are told that ‘Spain is not Greece’ and although it is a bit grasshopperish, ‘Spain is different’, we are doing our homework and we’ll get to the end of the tunnel.
In reality the true grasshoppers of the crisis and the depression are the capitalists, the markets, the bankers and speculators and their sycophants who have adopted the very techniques of attack of clouds of locusts, organising speculative raids in devastating swarms.
Fortune 500 the directors
The origin of the Greek capitalist crisis
1967-1974 military junta. PASOK came to power in 1981. Greece advanced in a social democratic direction through the 1980’s. It began to acquire elements of a welfare state with the creation of a national health service, the expansion of state education, a progressive reform of the university system, progressive Trades Union laws, increases in salaries and pensions and more public services. As in Spain, the tax system left the wealth and incomes of the rich and the very rich on the sidelines.
The first cuts began at the end of the 1990’s with the adoption of the convergence criteria imposed for the entrance to Euroland in 2001. The Euro, however, brought with it finacialisation (cheap credit packaged in financial products of a new design from the French and German banks). Euphoria reigned in the Athens stock exchange.
The ministers of the neoliberal right paid Goldman Sachs over $300 million (in commissions) to disguise the deficit and the debt. In 2001 Goldman Sachs came up with a scheme codenamed Aeolus that secretly channelled funds from rich investors into the Greek budget. In exchange the investors would receive the profits from all the public airports for 20 years, This hidden set up was revealed by Eurostat in 2004 but the rating agencies continued to rate Greek debt AAA.
The banks (the major operators in Bulgaria and Romania) and the Greek shipping companies expanded and prospered under globalisation whilst the productive base collapsed completely under German and other northern European competition. Whilst AVE train systems and airports were built all over the place in Spain, Greece bought French Mirage Fighters and American F16's by the dozen (between 2005 and 2009 these ‘investments’ accounted for 40% of imports).
The development of the Greek capitalist crisis
The financial crisis of 2008. World commerce declined and with it maritime transport. There remained tourism but this also took a beating in 2009. In contrast with Spain, the government caught up in the crisis was centre right, which instead of putting into effect Plan S for stimulus, was pressured into an immediate rescue of the banks which had failed after becoming involved in bad business investments in their over-leveraged eastward expansion (with credit from the ECB). This expansion went to finance property speculation in Bulgaria and Romania. The results of this were a fall in GNP of 2.7%, a public deficit of 15.4% and a public debt of 127% of GNP.
The EU imposed a drastic programme of cuts which led to the right-wing government resigning and calling elections. PASOK returned to government in 2009 with 44% of the vote and placed itself immediately at the service of European finance, imposing reforms, cuts and privatisations in exchange for successive rescues. This started a spiral of depression with a fall in GNP of 12%. Greek debt, with interest rates now running in double figures, became the most popular table to play at in the world financial casino, with successive waves of financial locusts betting on the short term (on the fall) or taking the risk on the long-term (on the rise) given the juicy rates of interest.
Workers and pensioners (E 500 to 700 /month) have lost more than a third of their income and payment is often delayed for a month or two. Real unemployment is at 25%. A good proportion of small businesses have closed down. Tens of thousands of civil servants have been laid off. Public services collapsed, street hospitals emerged (beds on the street in front of the casualty departments), and schools went without maintenance funds. In spite of all this prices continued to rise (3%) given that the principal providers were multinational monopolies (imposed globalisation).
As in Argentina, the brutality of the intervention led to strikes, demonstrations, marches, and the destabilisation of the political system. The 48 hour General Strike in October with 300 000 demonstrators in Athens and 200 000 in the rest of the country, occupation of public buildings and ministries, the blocking of parliament, cancellation of military leave for the national celebrations of 28 October……. Papandreou decided to call a referendum. The humiliating way in which the Greek head of state was treated by members of the G20 (which imposed successively the terms of the question, the date of the scrutiny and finally the withdrawal of the referendum altogether), demonstrated the complete de-structuring of the Greek political system. The troika then imposed a government of its own, headed by a banker.
The new government informed the public of the terms of Memorandum II, a packet of measures associated with a new tranche of the rescue fund. This included labour reform which prevented collective bargaining, the reduction of the minimum wage by 22% (32% for the youth), a 15 % cut in pensions and a further 150 000 public employees out of a job over the next three years.
In February 2012 the Greek parliament abolished the system of protected housing (OEK) and public childcare for workers (in this case in order to gain control of a E3000 million fund paid for directly by workers and businesses).
In contrast, the Greek elite have suffered insignificant damage and a good part of it has increased its wealth thanks to wage cuts and labour reforms, whilst the impact on the rest of Greek society has been devastating
, Whilst the German press at the service of the locusts clamour, ‘you're bankrupt, sell your islands, sell the Acropolis, you have to sell everything to pay your debts', no one remembers that under German occupation the Greek government was imposed with a heavy burden to pay the expense of the Wermacht. They forget that in March 1942 a forced loan was imposed on Greece by Germany of 476 million marks which has never been reimbursed (in spite of repeated claims by the Greeks) and that with an interest of 3% it represents a figure of $95 000 million.
Nobody remembers that the Greek partisans (communists) put up a strong resistance to the Nazis who did not hesitate to destroy the majority of the infrastructure of the country, requisition anything they could lay their hands on and caused one of the worst famines in modern European history. Three years of Anglo-American counter-insurgency against these same partisans left the country in pieces, whilst Germany received Marshall Aid and had its debts and war reparations cancelled.
Rescues are for the locusts
The rescue package of E130 000 million (in February 2012) was put into effect to organise the ‘voluntary’ restructuring of Greek debt. 30 000 million went directly into the pockets of the Greek bondholders to 'sweeten’ the restructuring. The remaining 100 000 million was destined for the recapitalisation of the banking system. In this way the greater part of the haircut went to save the official sector of the creditors. After the operation, the debt in private hands remained reduced to E 70 000 million (25%). In addition the majority of the private bondholders are protected by strong British legislation (penalties of all types) that complicates future attempts by Greece to restructure its debt.
The exchange of the old debt (a bond of E1000 at 10% for 10 years) for new bonds (a bond of E315 at 3% for 30 years) issued under British law, brings with it an additional sweetener, consisting of a gift of E185 per bond exchanged to pay for the EFSF.
In fact the E130 000 million of ‘rescue’ have been hijacked by the same troika which now illegally holds three quarters of Greek public debt to ensure itself of the receipt of interest payments, without a single Euro going to the Greeks or being used to stimulate their economy.
The interest on Greek debt (ten-year bonds) stands at 30% which implies two things; that the Greek taxpayers have to pay 100% of GNP in interest alone, and that in 2.4 years the debt will double. If Greece only pays interest on the rescue how is it going to repay the principal which doubles every 2.4 years? Legally it is understood that when a contract is not possible to complete then it becomes void. The Greek taxpayers will never be able to pay even the usurious interests imposed by the locusts. The greater part of Greek debt has been maliciously enforced on the Greeks and is therefore odious and illegitimate.
The spiralling flight of deposits
It is evident that the flight of southern deposits to the north is out of control. 2012 began with a continuous movement of funds from the PIIGS to German and other northern banks and possibly to non-European banks, which accelerated in the first four months of that year. In the Greek case the flight turned into a rush. In Spain the Bankia affair in May and the subsequent freefall of the stock exchange, led to a swift outflow of funds deposited in the financial system.
The fears are twofold; firstly the danger of a freezing of deposits in the case of an exit from the Euro and/or a deposit freeze in the event that the markets firmly refuse to refinance the debt.
These bank runs would leave Greek and Spanish banks without funds in an instant, destroying the whole European financial system. It is as if the valve on a pipe which fed a turbine was suddenly closed, what is known as a ‘water hammer’. How can this be avoided? Well, there is a transfer mechanism which acts as sort of safety valve. This is TARGET 2 (Trans-European Automated Real-time Gross Express Transfer).
Article 66 of the EU Treaty ensures the complete movement of capital within the Eurozone.
In the USA there is a system of deposit transfers between states similar to that in Euroland. As there is no foreseeable threat of secession and the introduction of a new currency, there is no danger of a deposit freeze and therefore no incentive for the flight of deposits from state to another.
This is not the case in the EMU. The first cases of flights of deposits were noticed in 2009, when fears arose that Greece and Ireland would leave the Euro. Later the flow slowed down.
Paradoxically, belonging to the EU makes transfers of deposits easier. If someone in Madrid wants to transfer his or her deposit to a German bank he or she only has to open an account at the Madrid branch of a German bank, given that there are no controls on the movement of capital. In addition there is no risk of a change to the system. The ECB and associated central banks recycle transfers of funds so that they return again to the PIIGS. The mechanism (technically known as Target 2) is automatic and implies a rescue by the ECB of the banks affected by the withdrawal of deposits.
In Target 2, a German bank that receives the funds deposits them in the German Central Bank (Bundesbank), which then transfers them to the ECB which in turn transfers them to the Spanish central bank which then transfers them to the bank which suffered the withdrawal of the deposit. In these transfers the Spanish banks and the Bank of Spain have to attach collateral to guarantee the debt to the ECB.
The ECB is acting as the lender of last resort in the present flood. It uses three mechanisms, Target 2, repo operations (two rounds of loans to the private banking sector at 1% interest of over a billion Euros, which in the case of Spain and Italy have served in part to replace funds withdrawn by depositors and the ELA (European Inter-bank Market which does not yet operate in Spain). These mechanisms provide a massive salvation of the financial system which, for the most part is concealed. If these movements were to be restricted or limited the peripheral banks would immediately be obliged to freeze deposits.
The massive flight of deposits from the periphery to the north is already in progress and it is a bottomless spiral with Greece and Spain in the lead. Were it not for Target 2 the whole Spanish banking system would be in a situation of bankruptcy.
The only way to solve a water hammer is to restore normal hydraulic flow. Target 2 can slow down the occurrence, as can the repos at 1% for 3 years or the punctual purchase of peripheral debt by the ECB, but while Europe continues to be locust territory the depressive spiral will end up devouring the whole show.
The ‘smart money’, deposits of over E100 000 outside the guarantee fund, is already outside the periphery. The danger is that the bank run will extend to the ‘dumb money’ (small depositors) and in Greece E700 million were withdrawn in May, something similar is occurring in Spain after the Bankia debacle. It is not, as yet, a flood.
Which is better off, Greece or Spain?
The cuts have been so drastic that Greece could register a primary fiscal deficit surplus in 2013, that is to say, that although it would not be able to pay the interest on the accumulated debt, it would show a surplus in its public accounts. If it stopped paying interest and repudiated its debt, the majority of which is odious and illegal, the Greek government would not need the markets or the troika to finance its expenditure.
It is an advantage to be smaller and more radical in a Europe on the edge of depression and in which the debate over cuts and homework may not give off enough scent to attract the locusts. It is possible that the increasingly discredited European institutions and the IMF itself may take their feet off the accelerator over Greece if the Greeks manage to definitively dislodge the corrupt PASOK-ND tandem from a political spectrum which is increasingly leaning to the left.
The advantage which the Spanish political class have up until now been playing to, that Spain is ‘too big to fail’, could boomerang back against them given the scale of the implied rescue. They may forced to watch impotently as Greece is forgiven some of its ‘sins’, whilst increased pressure is applied and ‘homework’ demanded from the Atlantic peninsula.
It is true that ‘size counts’. Ireland after more than three years of cuts continues in the intensive care unit (it has been in recession since the end of 2011) and will shortly require another rescue. The guidelines laid down for the small nations do not work for the agonizing path of the large peripheral nations, and from there we are faced with the spectre of ‘more Europe’.
In the Spanish case there is a kind of rationalisation in the bookkeeping of the public debt. Foreign investors are rapidly withdrawing a good part of their funds in Spanish assets (more than E100 000 in the first quarter of 2012), whilst Spanish banks are using the repos at 1% over 3 years (E0.3 billion) for the massive acquisition of Spanish public debt. The majority of the assets of the zombie banks are junk real estate assets and public debt in the process of turning into junk bonds. The required rescue of the Spanish banking system over the next three years will exceed the ECB loans…….check position too
More Europe?
More Europe would mean banking union, Eurobonds, a common tax policy, financial reform, anti-speculation taxes, transfers to the PIIGS and a policy of expansion. It would mean a more socialised Europe with greater solidarity.
Banking union based on the establishment of a European fund guaranteeing deposits (which would cover the deposits of a country in the event of its expulsion from the Eurozone) financed from a tax on bank transactions (VAT on speculation).
Recapitalisation of banks with funds from EFSF or its successor ESM (European Stability Mechanism) and write-offs of unsustainable debt, closing the door to more socialising of losses incurred by the gambling mania of the markets. In depth structural reform of the banking system, cuts, slimming down and dividing up of the giant ‘too big to fail’ banks.
Mutualisation of debt through Eurobonds
With the Greek press and television presenting the left as if they were the new Horsemen of the Apocalypse, the Greeks ended up voting for more or less the following: we are staying inside the Eurozone because we don’t want to find ourselves outside when the EU reforms itself.
Greece and Spain are caught up in the same spiral and the safety-rope which they believe themselves to be tied to is 'more Europe'. Whilst the ants remain divided, however, or believe that they are really locusts what we shall surely see is ‘less Europe’ and we shall end up watching Germany (after Finland?) abandoning Europe by the back door.
More Europe? The case of Yugoslavia
Depressions destroy the desire for union and cohesion. In other articles we have compared the case of Spain with that of Argentina. There is, however, an even more recent and geographically closer example of the attacks and destruction by the markets and that is the case of Yugoslavia. This is a nearby and dangerous precedent and is useful to take into account when making predictions about the immediate future of Greece, Spain and a good part of the rest of Europe.
In the 1960’s the Yugoslav economy was prosperous (GNP grew an average of 6.1%). It had a powerful and dynamic industrial sector. Unemployment was low and the levels of healthcare and education (both free) were admirable (life-expectancy for males was 72 years).
Yugoslav businesses exported to the West as much as to the Soviet Bloc and won tenders for the construction of infrastructure in Africa, Europe and Asia. The directors of these companies were supervised by workers councils drawn from all echelons of the work force. Trades Unions were powerful and strikes were not uncommon when there was conflict with the management.
The Yugoslavs belonged to a non-aligned nation and were free to emigrate. In the 1970’s more than 400 000 emigrants sent remittances home from Germany and elsewhere in Europe.
The petrol crisis of the 1970’s generated enormous financial surpluses (petrodollars) in search of profit. The bankers offered themselves as managers and intermediaries (recycling) and organised bank syndicates (clubs) to lend to sub-prime states willing to pay substantial rates of interest.
In the same way as in many Latin American countries, the markets offered loans to the Yugoslavs who needed foreign currency to be able finance fuel imports the price of which had shot up. Immediately they were met with demands to 'open up' the market to western competitors. The problem of debt surged, giving rise to the intervention of the IMF, which, in return for successive rescues, imposed the privatisation of self-managing companies, liberalisation of external investment, dismantling of the public sector, privatisation of the state bank, the habitual ‘structural reforms’ and consequent cuts in public services (papers declassified in 1992 implicate US agencies in the destabilisation of the country).
Whilst the IMF was pleased to gain control of the Yugoslav central bank, the country entered a depressive spiral of debt, inflation and stagnation which led to dismemberment and war at the beginning of the 1990’s. Between 1989 and 1990 more than a thousand businesses went bankrupt. In 1990 the GNP fell 7.5% and in 1991, 15%. In two years unemployment increased by 2 million, the majority of unemployed were industrial workers. Public income which ought to have financed the transfer of the confederated republics was diverted to pay the London and Paris clubs. In the end the federation broke up.
Who benefits from the Euro?
The Euro and its treaties were the grand invention of the locusts (large multinationals and the big financial operators). It is an immense pro-monopoly market and a perverse circular scheme to squeeze the disorientated ants whilst obtaining juicy industrial and financial profits. Whilst the industrial monopolies prospered exploiting the skilled workers recently in from the Soviet cold and selling to a captive peripheral market which was not able to devalue, the financiers gorged themselves, transferring the surpluses of the north to the deficit periphery. Everything turned better and faster with doses of bubbles.
In the chaos of the bursting bubble, crisis and depression the majority of the locusts continue to prosper and enrich themselves. Without the Euro the monopolies would perhaps have a lesser volume of business but in return they would get fatter through more and more fusions and acquisitions, maintaining the high prices and huge profits of monopoly. Wealth will continue to polarize exponentially given that the markets have learned to sail and do lucrative fishing on the turbulent waters which are engulfing entire nations and states (many of the great fortunes were made in similar conditions). Other huge fortunes were made when coveted natural monopolies fell like ripe fruit into private hands.
So no ant should expect a break from the locusts. The locusts have sucked the juice from 'their’ Euro and will continue experimenting on their invention whilst they are making profits. If they cease to profit they will abandon it.
There is no Euro for everyone; a ‘neutral’ Euro does not exist. To get Europe back on the road of solidarity and socially based principles requires revolutionary mentality and action, if not the world will continue to be the globalised planet of the locusts and their plagues, with the Euro or without it.
