Commentary

Gwynne Dyer: Alexis Tsipras, Angela Merkel, and the roots of the financial crisis plaguing Greece

by Gwynne Dyer on July 1st, 2015 at 11:07 AM
    1 of 1 2 of 1

      Political parties rarely commit suicide. The current crisis in Greece, which has led to Sunday’s referendum on the terms of a deal with the European Union, is mainly about the survival of Prime Minister Alexis Tsipras’s Syriza Party. But it is also about the electoral future of Germany’s governing party, the Christian Democratic Union.

      Almost all of Tsipras’s time since Syriza was swept into power in last January’s election has been devoured by negotiations about Greece’s foreign debt—at 175 percent of gross domestic product, the highest in the developed world. But the negotiations did not focus on what to do about that staggering burden, which is so big it can never be repaid.

      Four-fifths of the money is owed to official European bodies like the European Central Bank, with a relatively small role for the International Monetary Fund (IMF), but the “eurozone” authorities just want to kick the can down the road. Why? Because 90 percent of the money they have lent Greece in successive “bailouts” goes straight back to the German and French banks that financed Greece’s 10-year party on borrowed money.

      Greece’s economy was too weak to join the euro, but the government of the day manufactured false statistics that concealed that fact. Once in the euro, the Greek public and private sectors could borrow money at low “German” rates—and they borrowed vast sums.

      That money was blown in a massive spending spree on luxury goods, early retirement deals for the voters, anything but productive investment. The Greeks thought they were being very clever, but then came the global financial crisis of 2008. Greece’s economy has been on life support ever since, and the first bailout came in 2010.

      It wasn’t charity. The richer eurozone countries were protecting their own banks, which recklessly lent Greece the money, and trying to stop Athens from crashing out of the euro, which would raise awkward questions about the viability of the new “single currency” as a whole. (At least four other eurozone countries—Italy, Spain, Portugal and Ireland—were also in financial difficulties at the time.)

      So Greece got the money, but to justify these bailouts to voters in the richer eurozone countries (who were really footing the bill), the Greeks had to accept severe austerity measures. So severe that the Greek economy has shrunk by a quarter in the past five years and 25 percent of Greeks are now unemployed.

      Yet during that time Greece’s debt has continued to grow. Greece’s only hope of escape from perpetual austerity is a “restructuring” of the debt that writes off as much as half of it. But Germany and the eurozone’s other big creditor countries will not even discuss that, because their own taxpayers would rebel.

      So five months of negotiations about Greece’s debt haven’t even touched on “restructuring” it. They have just been about what new austerity measures Greece must accept to get the last tranche of the last bailout, which would give Athens enough money to pay the loans that are coming due this summer.

      Tsipras was elected on an anti-austerity platform, and the left of his own Syriza Party would rebel if he gave in to all the demands for further cuts in Greek government spending. He came close to his “red lines” in June, but he would not cross them—and Germany’s chancellor, Angela Merkel, still won’t discuss writing off some of Greece’s debt. So in the end Tsipras walked away and called a referendum.

      The last eurozone offer, which only crossed Tsipras’s red lines a little bit, is no longer even on the table, but the referendum on Sunday asks Greek voters if they will accept it. The eurozone leaders say it is therefore a vote on whether Greece wants to leave the euro (and quite likely the EU as well), but Tsipras insists that a "no" vote will just strengthen his hand in another round of negotiations.

      If the Greeks vote "yes"—and they may well do so, because they really want to stay in the euro and the EU—then Tsipras says he will simply quit and let somebody else take the blame for accepting the terms. His own party’s unity will be intact, and he will be a hero to the Greek left. There would have to be a new election, and he might even win it. (A referendum win requires 51 percent of the vote; you can win a Greek election with 35 percent.)

      If the Greeks vote "no", Tsipras will stay in power. Maybe there would then be further negotiations, but that depends mainly on whether Angela Merkel can be moved on the question of debt relief. That could be very costly politically for her, but after the talks collapsed both the European Commission and the IMF put out statements saying that writing off some of Greece’s debts could be part of future negotiations.

      If Tsipras doesn’t get a solid promise on that after winning a "no" vote, he might end up leading Greece out of the euro and the EU. That would open several new cans of worms, but we can wait until Sunday before we get the can-openers out.

      Comments

      12 Comments

      SPY vs SPY

      Jul 1, 2015 at 2:42pm

      I have a really good solution to the Greek Debt Problem.

      Use all the Power of the EU and IMF and the World Bank, and have all the Bank Accounts that are in the Names of Greek Corporations, Politicians and Citizens who reside in Greece, that are held in Countries outside of Greece, frozen and all the Funds transferred back to Greece.

      Have all the Politicians and Bankers who lied to get EU Membership, Arrested, Prosecuted and then Executed (Yes my Frendos, Capital Punishment is applicable and moral in this situation).

      Make the sole role of the Greek Military to Monitoring the filing of Income Tax Returns and Collecting Taxes only. (Greeks will just have to put on Hold and Wars they may wish to start for about 25 years) Public Flogging for those owing more than 100 Euros.

      WHY - In the past - if you were a Greek Civil Servant, when you died you could pass on your State Pension to you unwed Daughter (she got the Pension for life) - Would it surprise you how many Greek women dodged the Marriage Ceremony?????????????

      The Greek Government had 20,000 commissions with up to 20 - 30 people on them, To simply advise the Government on how to Govern- All were on the Government Pay roll.

      I think that Greeks role Model in this crisis is, Argentina who defaulted on their National Debt 7 times and Venezuela who have defaulted 11 times.

      The Greek Chicken Souvlaki Has come Home to Roost!!!!!!!!!!!!!!!!!

      I Chandler

      Jul 1, 2015 at 3:24pm

      Dyer: "That money was blown in a massive spending spree on luxury goods, early retirement deals for the voters"

      Mr. Dyer forgot: Olympic spending? Military spending? Early retirement deals for Bankers?

      Greece spends double what most other EU countries spend on the military . Greece’s military budget amounts to $4 billion - 2.2 per cent of GDP - Germany spends 1.2 per cent.

      The cost of the 2004 Athens Summer Games (@US$15 billion) has been cited as a contributor to the crisis. Many of the venues lie vacant and rotting...

      Early retirement deals for Irish-Anglo Bankers are described by Fintan O'Toole, author of "Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger,". He estimates that to save the Irish-Anglo Bank, Irish taxpayers shelled out 30 billion Euros, a sum that was the equivalent of the island's entire tax revenues for 2009."
      https://www.youtube.com/watch?v=E0NvtxgTt6I

      The mouse that roared or Le Quebec L:ibre?

      Jul 1, 2015 at 4:19pm

      The PQ should be watching this with grim fascination.

      Gordon Eric Martin

      Jul 1, 2015 at 7:16pm

      "That money was blown in a massive spending spree on luxury goods, early retirement deals for the voters, anything but productive investment.

      " So what? Our need in the developed world is to keep money moving. The "spent money" is like blood in the body it must keep moving for best results to all

      Greg G.

      Jul 2, 2015 at 3:52am

      "That money was blown in a massive spending spree on luxury goods, early retirement deals for the voters".

      As several other posters have mentioned, this statement just isn't true. The vast, vast majority of the money was spent on military spending, and just which country did most of this cheap money that was pushed on the Greek government by the mostly German banks end back up in? Why, coincidentally enough, Germany, whose weapons industry supplied the vast majority of equipment that the Greek governments purchased.

      There is a second problem, and one also common to Italy and other southern Mediterranean-bordering countries, and that is taxation, and specifically, income taxes. The very richest of Greeks, the shipping magnates, etc., pay very little if any income tax at all, and never had. Now, this doesn't mean that they aren't taxed, they just simply don't pay it and there are no consequences at all for this behavior.

      How Greece, and similar countries, dealt with this was through a strange form of back-door taxation, that being periodic currency devaluation. When the Greek government inevitably would get in over it's head, it would simply print money to pay off it's debt. The currency devalued, which would "tax" the rich by making the real spending power of their horded fortunes drop massively, as well as being pretty much a debt-write off for ordinary Greeks to their banks e.g. if your mortgage payment is for example 1000 dollars and your monthly wage is 3000 dollars, and your nations currency is massively devalued, with your wages correspondingly going up so that you now make 5000 dollars, your mortgage payment now is only one-fifth of your monthly wage rather than one-third of it. I have an elderly neighbour here in Saskatchewan that when I asked why he never re-negotiated his mortgage when lending rates dropped so much after the 90s he replied to me, "Why would I, my mortgage payment is only $125/month?", which illustrates the point.

      How countries like Italy, Greece, Spain, etc., ever thought they could make a go of being in a larger single-currency market without first cracking down on tax evasion by their richest citizens and corporations is kind of mind-boggling. Whether the 2007-08 financial crisis and recession happened or not, it was just a matter of time before governments like Greece got in trouble because of institutionalized tax evasion.

      Greg G.

      Jul 2, 2015 at 3:56am

      @Diggy,

      Great article, that really nails the problem of NATO expecting too much out of the Greek military along with German and French arms dealers pushing weapons by continuing to help fan the flames of Greece's historical fear of the Turkish military. I have seen Gwynne Dyer himself speak on this very phenomenon in person at U of Regina back in the 90s, has he forgotten the content of his very own lecture? WTH??

      Boldt50

      Jul 2, 2015 at 9:10am

      Greece needs to restructure before debt forgiveness. Leaving beyond your means on other's money and not collecting taxes has to end.

      N.S. Archetype

      Jul 2, 2015 at 7:31pm

      There’s no “paying back” in these loans. That’s the beauty of the modern financial system. The “loan” is basically created out of thin air, so if the debtor can’t pay you back, you haven’t lost anything. Hence, the constant granting of new loans to cover the old. They’re not throwing good money after bad, they’re merely making certain that their debtor can continue to pay interest, which is all they’re after.

      And, speaking on the crisis on Friday, the Greek foreign minister had an interesting prediction.

      From Reuters:

      “So you are not giving a solution to Greece, you press the Greek government? What can be the solution? Golden Dawn is coming. Nobody has an interest in that, so that is why they will find a solution,” said Kotzias, highlighting the far-right political party that is the third largest in parliament.

      But the "solution" simply does nothing but postpone the inevitable.