October 3, 2011
As the Greek Debt Crisis drags on with no end in sight, it is becoming harder and harder to skirt around one wholly uncomfortable though increasingly unavoidable question: Who is all this bailing out and austerity really for- the Greek people, or the European banks that financed their government?
Even though the Greek government has recently gone back to its people to ask for yet another round of tough austerity policies meant to get the annual budget deficit under control, it seems that it won’t even be close to enough. Officials in Athens recently admitted that the 7.6% deficit year-end goal that they set for themselves was out of reach: the global economy will have to settle for a deficit of 8.5% of the Greek GDP. Of course, this is all taking place against the backdrop of a Greek economy that has shrunk 10% in the last year and is reeling from 16.3% unemployment.
Cue another dose of red on trading floors around the world.
Despite the skewed impression that international media might give the casual observer, Greeks aren’t taking this newest round of cuts sitting down. Various unions have taken to the streets, including transportation workers, air traffic controllers, and teachers. Greek newspapers are also taking an increasingly defiant tone in the face of what they see as dictatorial demands from international creditors. As the situation unfolds, we see a Greek government that has not only detached itself from its people, but also floated into its own, happier reality.
The important thing to take from this is: it’s not just the Germans who have an increasingly limited appetite for shovelling cash into the flames to stave off a default. The Greeks are fed up with it as well.
There are of course several important reasons why it’s within the EU’s interest to keep the Greek government from defaulting on its debt. At the very top there are the symbolic considerations. If one member leaves the common currency, then any member can. This could snuff out any possibility of the euro ever garnering enough investor confidence to serve as a hard global reserve currency. Next there are the immediate economic pains that would result from detaching the Greek banking system from other European central banks. This would be an economically painful process that would impact the entirety of the EU. Finally there are the German and French banks that would be savaged by the removal of Greek debt from their balance sheets. This in itself is probably enough to kick off another global banking crisis.
There’s no question that the stakes are high on a potential Greek default. But, given souring political attitudes and the immensity of the task at hand- is avoiding a default even possible? The European Financial Stability Facility will fork over 8 billion euros to the Greek government on October 3rd. How long will this 8 billion last?
A whole month.
With numbers like these, perhaps a Greek default is unavoidable. There’s just not enough money let alone political will to keep shovelling funds into a Hellenic abyss. And is so, why are the Greek people being made to suffer if the ultimate result is going to be the same regardless? Perhaps the answer is, as the BBC’s Gavin Hewitt has suggested, that these half-baked bailout plans are merely cynical trick to buy some time so that European banks can prepare their balance sheets for the inevitable.
If this is true, then the ongoing Greek debt crisis is yet another example of public funds being used to pay for the sins of private corporations. When German and French banks bought Greek debt, they took on the risks like with any other investment. So why should not only the people of Greece, but taxpayers throughout the European Union be made to suffer for their terrible judgement?