"Drop Dead Economics": The Financial Crisis in Greece and the European Union

Global Research, May 11, 2010

Riddle: How are the Greek rioters like America’s Tea Party movement?

Answer: Both reject government being taken over by the financial oligarchy to shift the tax burden onto labor.

The difference is that the Tea Partiers have lost faith in government. This is just what the financial oligarchy wants, of course. Giving up hope of
gaining electoral control to pursue a fair fiscal agenda, the Tea
Partiers have abandoned the centuries-long fight for reform to make
governments better by giving them the power to check predatory finance
and wealth. Sliding to the right wing of the political spectrum and
acting mainly out of frustration, they have succ**bed a utopian desire
simply to shrink government that they see acting adversely to their
interests.

Financial lobbyists are using the Greek crisis as an object lesson to warn about the need to cut back public spending on Social Security and Medicare. This is the opposite of what the Greek
demonstrators are demanding: to reverse the global tax shift off
property and finance onto labor, and to give labor’s financial claims
for retirement pensions priority over claims by the banks to get fully
paid on hundreds of billions of dollars of recklessly bad loans
recently reduced to junk status.

The Greek bailout should be thought of as a TARP for German and other European bankers and global currency speculators. Almost $1 trillion is being provided by
governments (mainly Germany, at the cost of its own domestic spending)
into a kind of escrow account for the Greek government to pay foreign
bondholders who bought up these securities at plunging prices over the
past few weeks. They will make a killing, as will buyers of hundreds of
billions of dollars of credit-default swaps on the Greek government
bonds, speculators in euro-swaps and other casino-capitalist gamblers.
(Parties on the losing side of these swaps now will need to be bailed
out as well, and so on ad infinitum.)

This windfall is to be paid by taxpayers ­ ultimately those of Greece (in effect labor, because the wealthy have been untaxed) ­ to reimburse Euro-governments,
the IMF and even the U.S. Treasury for its commitment to predatory
finance. The ³sanctity of debt ­ sacrificing the economy to pay
bondholders ­ is to be used as an excuse to slash Greek public
services, pensions and other government spending. But what is sanctity
and religion, after all, without sacrifice. The question is, who is
being sanctified, and to what god? In this case it seems to be Mammon,
not Jesus. Self-immolation is to become a model for other countries to
impose similar austerity as governments run up budget deficits in the
face of economic shrinkage and falling tax collections.

Meanwhile, the financial sector is to be enriched by the translation of junk economics into international policy. Living in the short run is the
financial sector¹s time frame ­ while distracting the attention of
indebted populations from calculations that Wall Street understands
quite well: the debts cannot be paid in the end.

But they can be paid in the short run, with promises to pay someday ­ as if any economies ever have been able to grow by imposing austerity! It is all
junk economics, of course. But it buys time for the bankers to pay
themselves yet more bonuses this year. By the time the financial system
collapses, they presumably will have put their money into hard assets.

Bank lobbyists know that the financial game is over. They are playing for the short run. The financial sector’s aim is to take as much bailout
money as it can and run, with large enough annual bonuses to lord it
over the rest of society after the Clean Slate finally arrives. Less
public spending on social programs will leave more bailout money to pay
the banks for their exponentially rising bad debts that cannot
possibly be paid in the end. It is inevitable that loans and bonds will
default in the usual convulsion of bankruptcy.

Greek labor is not yet so pessimistic as to give up the fight. What it recognizes that its American counterparts do not is that somebody will control the
government. If labor – the demos – loses its spirit, power will be
relinquished to foreign creditors to dictate public policy by default.
And the more the bankers’ interest is served, the worse and more
debt-burdened the economy will become. Their gain is bought at the
price of domestic austerity. Scheduled payouts by Greek pension funds
and government social spending programs must be to replenish German and
other European bank capital.

This worldview already has been delivered to Europe’s northernmost periphery, where it has elicited a fiscal masochism that banks hope to see in Greece. Having fallen on their swords, Baltic governments would
be jealous and even resentful to see Greece rescue its economy where they themselves failed to
repudiate arrogant creditor demands. “Seen from the eastern rim of the
European Union, the looming austerity drive in crisis-afflicted Greece reads like old news,” writes Nina Kolyako.[1]
“For almost two years, the Baltic states of Lithuania, Latvia and
Estonia have brought in repeated draconian measures, slashing public
spending and hiking taxes to try to dig themselves out of a h***. ‘We
learned the lessons very painfully, heavily and effectively, that you
need to look after the fiscal situation very carefully,’ Lithuanian
Prime Minister Andrius Kubilius told AFP in a recent interview. ‘We
understood very clearly that fiscal consolidation was the only way for
us to survive.’”

Capitulating in a classic Stockholm syndrome (literally to Swedish banks in this case), Lithuania’s government dutifully tightened to screws so much that GDP plunged by over 17 percent. A similar plunge occurred in Latvia. The Baltics have slashed public-sector employment and
wages, imposing poverty rather than the Western European levels of
prosperity (and progressive taxation to foster a middle class) that was
promised after the Baltics achieved their independence from Russia in 1991.

After Latvia’s parliament imposed austerity in December 2008, popular protest in January brought down the government (as a similar protest did in Iceland). But the result was merely another neoliberal
“occupation regime” run on behalf of foreign banking interests. So what
is unfolding is a Social War on a global scale – not the class war
envisioned in the 19th century, but a war of finance against entire
economies, against industry, real estate and governments as well as
against labor. It is happening in the usual slow motion in which great
historical transitions occur. But as in military conflicts, each battle
seems frenetic and spurs wild zigzagging on the world’s stock and bond
exchanges and currency markets.

All this is great news for computer program traders. The average commitment of funds lasts only a few seconds these days as financial markets are buffeted up and down by vast credit waves blown by
the storms sweeping today’s financially overheating planet.

The coming economic dystopia

The Greek crisis shows how far the “European idea” has shifted from 1957 when the six-member European Economic Community (EEC) was formed. At U.S. prodding, Britain
and Scandinavia created the rival seven-member European Free Trade
Association (EFTA) Even so, the promise of Euroland – at least before
Maastricht and Lisbon – was to elevate labor to middle-class
prosperity, not to impose IMF-type austerity programs of the sort that
devastated Third World countries. The message to indebted economies is
stark: “Drop dead.” And they are obediently committing economic suicide
(emulating Japan in the 1985 Plaza Accords) to endorse the Washington
Consensus – the class war of finance against labor and industry.

Political, social, fiscal and economic power is being transferred to the EU bureaucracy and its financial controllers in the European Central Bank
(ECB) and the IMF, whose austerity plans and related anti-labor
programs direct governments to sell off the public domain, land and
subsoil wealth, public enterprises, and to commit future tax revenues
to pay creditor nations. This policy already has been imposed on “New
Europe” (the post-Soviet economies and Iceland) since autumn 2008. It is now to be imposed on the PIIGS (Portugal, Ireland, Italy, Greece and Spain). No wonder there are riots!

For observers who missed Iceland and Latvia last year, Greece is the newest and so far the largest battlefield. At least Iceland and the Baltics have the option of re-denominating loans
in their own currency, writing down their foreign debts at will and
taxing property to recapture for the government the revenue that has
been pledged to foreign bankers. But Greece is locked into a European currency union, run by unelected
financial officials who have inverted the historical meaning of
democracy. Instead of the economy’s most important sector – finance –
being subject to electoral politics, central banks (the designated
lobbyists for commercial and investment bankers) have been made
independent of political checks and balances.

In truly Orwellian fashion, right-wingers in Europe and the United States (such as Fed Chairman Ben Bernanke) call this the “hallmark of democracy.” It actually is the stamp of oligarchy,
stripping away control over the economy’s credit allocation – and hence,
forward planning – while giving high finance a stranglehold over
public spending programs.

Iceland, Latvia and now Greece are the opening shots in the resulting global campaign to roll back the great democratic reform program of the 19th century and the Progressive Era: taxation of land
and the “unearned increment” of price gains for real estate, stocks and
bonds, and subordination of the financial sector to the needs of
economic growth under democratic direction. This doctrine was still
being followed by the post-1945 era of progressive taxation that saw the
20th century’s greatest rise in living standards and economic growth.
But most countries have reversed the fiscal trend since 1980.Tax
collectors have “freed” income from public obligation only to see it
pledged to banks for higher loans to bid up property prices.

Houses, office buildings and entire companies are worth whatever banks will lend. So populations (and corporate raiders) have responded to the
pro-financial tax shift by borrowing to buy houses (and companies)
before prices recede even further out of reach. And taxes on labor now
are about to be jacked up to pay off the public debts resulting from
the asset-price inflation and financial wreckage that property tax cuts
have helped cause. This is the cause of national debts. Governments
have run into debt as a result of un-taxing the wealthy in general, not
just real estate.

Following Western governments in shifting the fiscal burden off property and finance onto labor over the past few decades, Greece’s government is politically unable or unwilling to tax the wealthy, or even well-to-do professionals. But neoliberals blame it
and other debtor governments for not selling off enough public land and
enterprises to make up the gap. Tax-deductible interest charges make
privatizations on credit tax-exempt, so governments will lose the user
fees they formerly received – while populations pay higher “tollbooth”
charges for hitherto public services.

Just as the U.S. Government has done, it has issued bonds to finance the deficit resulting from these tax cuts. The buyers of these bonds (mainly German banks) are demanding that Greek labor (and
now German taxpayers as well) should bear the burden of tax shortfalls.
German and other European banks and bondholders are to be repaid at the
social cost of drastic cutbacks in pensions and social spending – and
if possible, by more privatization sell-offs at distress prices.

The riots in Greece have erupted because labor understands what most journalistic reporting shies away from confronting. Growth in real wages
has slowed (and has stopped cold in the United States since about 1979). Home ownership has been achieved at
the cost of new buyers taking on a lifetime of mortgage debt. And the
post-Soviet economies won their political freedom from Russia, only to
find themselves insolvent today, dependent on IMF and EU direction of
their economies to obtain the loans to pay their foreign bankers that
have loaded down their housing, public enterprises, industry and
families with debt.

Bondholders and financial speculators have ganged up to demand EU, IMF and US support for them to take their gains before the financial game crashes. The grab can be done most quickly by shrinking economies
under IMF-style austerity plans. Unemployment is to rise while driving
economies even further into debt – not only public debt as shrinking
markets lead to falling tax revenue, but also foreign debt as import
dependency increases.

Creditors are to be paid by letting them appropriate the economic surplus, in the form of debt service at the expense of new capital investment, infrastructure spending, public social spending and
rising living standards. Economically, the Greek uprising is a revolt
against the policy of sacrificing prosperity to pay foreign creditors in
this way.

At the political level the fight is to save Greece from being turned into an anti-state. The classical definition of a “state” or government is the ability to levy taxes and issue money. But Greece has relinquished its fiscal authority to the EU
and IMF, which are telling it to violate what political theorists list
as the Prime Directive of any government: to act in the long-term
national interest. The Greek government is being directed to act on
behalf of bank capital, and indeed, that of foreign countries to engage
in asset stripping, not to promote long-term growth.

At issue is whether nations will be run by creditors or by popular aims to reap the benefits of economic growth. An oligarchic push for IMF-EU loans to
bail out foreign banks and bond speculators at the expense of Greek
labor (the intended taxpayers of the future) aims at making labor
rather than finance capital take the loss of government arrears
resulting from un-taxing wealth. The aim is to enable foreign banks to
avoid having to pay the price for acting as enablers in draining the
domestic market. Government policy is to be taken out of the hands of
voters and subordinated to the IMF and EU acting as instruments of
international finance.

This creates a state of affairs in which neither Greece nor the EC are “states” or “governments” in the traditional political sense. The EU and IMF bureaucracy is not elected. And at the point where their foreign-dictated financial plan succeeds,
the economy’s capital will be stripped and social democracy will
collapse.

On Sunday, May 9, German voters expressed their anger at the government’s role in bailing out German bankers (euphemized as bailing out “Greece”) at the expense of German taxpayers. The European
Central Bank [ECB] is not creating free euro-money but is billing
national governments). the Social Democrats overtook Chancellor Angela
Merkel’s Christian Democratic Union party in North Rhine-Westphalia.
Winning only a bit over a third of the vote – a bit less than the Social
Democrats (and down over 10 percentage points from the last election,
of which 4 points were lost just in the last week when the bailout
package was promoted by Ms. Merkel) – the CDU lost its majority in
Germany’s upper house.

Many German voters may have wondered whether taxing the poor to pay the rich to engage in usury was really as “Christian” as the party claimed to represent. Or maybe they were concerned that Germany’s tax collector is to pay nearly $30 billion as its share
in the bailout of bankers – not all of whom are beloved in Germany, even when they are German. And some no doubt saw the game
as a financial deception by the banking sector’s compliant
politicians.

The deception

Europe’s financial lobbyists used the crisis as an opportunity to promote a broad series of bailouts. For Swedish and Austrian banks, the EU approved a €60bn extension of the balance-of-payments facility
already put in place to help Hungary, Romania and Latvia keep current on their debts to Austrian and Swedish banks
respectively. To circ**vent the Eurozone’s no-bailout principle, this
special bailout law is based on Article 122.2 of the EU treaty
permitting loans to governments in “exceptional circ**stances.”[2]

If we give Ms. Merkel credit for understanding the economics at work, then we must accuse her of lying through her teeth. The Baltic debt problem is chronic and structural, not “exceptional.”
Ms. Merkel also must know that she is being deceptive in pretending to
help Latvia by extending loans that the EU limits explicitly to
support the lat’s exchange rate, not for domestic development. The
foreign exchange is to cover the cost of Latvians paying mortgages in
euros to Swedish banks, and of Latvian consumers buying food and
manufactures that EU governments subsidize while leaving the Baltics in a
state of economic and financial dependency.

Latvia thus is being victimized, not helped. The aim is to give Swedish banks a little more time to keep collecting payments on loans that are going to go bad in due course. Foreign exchange spent in
facilitating private debt service to foreign banks becomes a national
debt, to be paid by Latvian taxpayers. This EU loan thus is an exercise
in naked neo-colonialism.

Will the belated shift of German voters to back the Social Democrat red-green coalition with the Green and Left parties do much to stem matters? Probably not. Greek President Papandreou acquiesced in
the cave-in despite being head of the Socialist International. So the
question is whether Greece really is checkmated, destined to see its
public spending, pensions, health care, schooling and living standards
rolled back in the way that the Baltics have experienced. They have been
an experiment in neoliberal central planning. If they are an example
of what the future is to bring, the world will soon see a wave of Greek
emigration, Baltic-style.

That evidently is what stock markets around the world anticipated when they soared on Monday morning at the news of Europe’s trillion-dollar bailout. What really was bailed out is the principle
that economies should be stripped so that finance capital may rule. But
the fight surely is not yet over. It will escalate for the remainder of
the 2010s, because it is nothing less than an attempt to roll back the
history of the 19th and 20th century’s struggle to replace the power
of vested property and financial interests with principles of
progressive taxation and public enterprise.

Is this where Western civilization really is supposed to be leading? Confronted by parliaments controlled by aristocracies, the 19th-century reformers
sought to take them over on behalf of democracy. Classical political
economy was a reform program to tax away the “free lunch” of land
rents, monopoly rents and financial interest extraction. John Maynard
Keynes celebrated this program in his gentle term, “euthanasia of the
rentiers.”

But the vested interests have fought back. Calling social democracy and public regulation “the road to serfdom,” They are trying to set Europe’s economies on the road to debt peonage. Making an
end-run around national elected governments to impose the Washington
Consensus IMF and EU institutions have gained fiscal and economic
control over governments and their tax policies to cut taxes on wealth –
and borrow from it to finance the resulting fiscal deficits.

America’s Tea Partiers and anti-tax rebels have given up the fight to reform governments. Squeezed by debt from which they see no escape, they demand lower taxes – and are willing to see the highest brackets
become the major beneficiaries in an even more regressive tax shift.
Faced with the corruption of Congress by lobbyists acting on behalf of
the vested interests, they reject government itself and seek safety in
local gated communities. They see Congress and parliaments throughout
the world losing autonomy to the IMF, the EU and other Washington
Consensus organizations seeking to impose austerity and shift the tax
burden onto labor and industry, off property and off predatory finance.

The only way to prevent a regressive tax shift and debt squeeze is gain control of governments on behalf of the spirit of classical economic and
Progressive Era reforms. At least, that is what Greek labor is rioting
for. Someone must control government, and if democratic forces withdraw
from the fight, the financial sector will tighten its trip.

Last week is still only the beginning of how this drama will play out. The response by the post-Soviet economies, which have retained their own
currencies, is to come this summer and autumn.

Notes

[1] “Austerity drives are old news for Baltic States,” Baltic Course, May 10, 2010. http://www.baltic-course.com/eng/analytics/?doc=26683)

[2] Ben Hall, “Governments to control loan guarantee scheme,” Financial Times, May 10, 2010, http://www.ft.com/cms/s/0/dd695f76-5c19-11df-95f9-00144feab49a.html.