An Open Letter To My Legislators On Greece

In 1919, British Economist John Maynard Keynes resigned from his country’s delegation to the Paris Peace Conference as well as his post in the Treasury Department in direct protest of harsh punitive war reparations placed upon Germany. Keynes is one of the fathers of our modern economic system, lending his name to the Keynesian school of thought. He called the Versailles talks “a scene of nightmare” and left the other participants so they could “gloat over the destruction of Europe” in their own peace. Later that same year Keynes wrote an entire book, The Economic Consequences of the Peace, which laid out the subject in stark terms:

The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable, –abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilised life of Europe.

As we see in the abject failure of austerity measures to bring wellness to a population or its economy, in an ironic twist of Keynes’ fears, Germany seems to have its sights set on impoverishing Greece for a generation or more. As an American I believe this is a threat to our national interests in a unified, productive Europe. As a person I believe the actions of Germany and the Troika are reprehensible and must be countered by those who believe in freedom, sovereignty and helping others up rather than keeping them down.

Greece surely bears some measure of responsibility for their financial state, especially as regards weak or fraudulent accounting prior to 2009 and infuriatingly lax tax collection. A clear mandate has emerged from Greek voters even before the referendum: Greece is to operate responsibly. But their very inclusion in the European Union set them up for failure at their own great expense and to the enrichment of others. Entry into the European Union carries a number of requirements, including specific debt-to-GDP and deficit-to-GDP percentages that Greece had no hope of meeting at that point. At the request of several EU countries keen to see Greece brought in, Investment bank Goldman Sachs reportedly made hundreds of millions of dollars in the financial engineering used to hide Greek debt. Those complex financial instruments came due and are wreaking havoc upon not just the Greek economy but now their national sovereignty as well.

Computer programmer and economic commentator Steve Randy Waldman posted several times about Greece recently with a fair amount of information I hadn’t heard before. The most startling was this:

European banking regulations attached zero risk weights to all EU sovereigns, rendering it nearly costless for banks to simply manufacture deposits to purchase sovereign debt. Eurozone sovereigns were default-risk-free as a regulatory matter and currency-risk-free from the perspective of Eurozone banks. The European financial system was architected to make lending to Greece — and Spain and Portugal and Italy — a money machine for bankers with little career risk over a medium term. Sketchy credits tend to punch above their weight in terms of volume of issuance, so there was a lot of nice paper to buy. The bankers who lent to these states understood perfectly well that there was in fact a long-term risk, an uncertainty, a constructive ambiguity. They lent anyway, and took home very nice salaries and bonuses for doing so. It was conventional to lend, the mainstream consensus was that credit risk was over and worry warts were old-fashioned, Europe was strong and would work this out. If the worry warts turned out to be right, it was likely years away, IBGYBG.

Given what’s been known about the Greek economy for a good long while now, the idea that their sovereign debt was weighted zero-risk as a regulator matter means that, as Waldman also explains, the economic backstop of moral hazard (something invoked early and often in our own 2008 financial crisis) fell to the wayside. Creditors were able to extend much more money to Greece much faster without worrying about the fallout – and making gobs of cash for their own firms in the meantime. When the house of cards came crashing down the engineers would be long gone.

For the record, my sophisticated hard-working elite European interlocutors, the term moral hazard traditionally applies to creditors. It describes the hazard to the real economy that might result if investors fail to discriminate between valuable and not-so-valuable projects when they allocate society’s scarce resources as proxied by money claims. Lending to a corrupt, clientelist Greek state that squanders resources on activities unlikely to yield growth from which the debt could be serviced? That is precisely, exactly, what the term “moral hazard” exists to discourage.

Moral hazard having been cast aside the money flowed fast and furious to Greece – until it didn’t. And suddenly the regulatory structure of the European Union claims innocence as the European Central Bank, the IMF and Germany all center their gunsights on the Greek populace in order to make creditors whole rather than admitting to the malfeasance on their own parts for creating this scenario in the first place. We now see the lengths to which Germany and the Troika want to take this, and it includes regime change and/or ouster from the EU. The Europeans forced the resignation of Greek Finance Minister Yanis Varoufakis, and have reportedly demanded that of Prime Minister Tsipras as well. According to the Guardian, the organization Greece is supposed to turn over $50 billion in state assets too is a German subsidiary corporation located in Luxembourg whose chairman is German Finance Minister Wolfgang Schauble. Schauble announced its inception two years ago alongside then-Greek PM Antonis Samaras (who was until last week the opposition leader). This is former US Treasury Secretary Tim Geithner’s recollection of a 2012 meeting with Schauble.

The destruction of the Syriza party and the entrapment of the Greek populace in soul-crushing austerity is both highly engineered and totally unconscionable – especially on the part of Germany. French Economist Thomas Piketty recently gave a fantastic interview to Die Zeit in which he outlined Germany’s history of unpaid reparations. Piketty’s a sensation at the moment in part thanks to his book on capital taking the economic world by storm.

Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

Piketty goes on to talk about historical examples of states moving from saturating indebtedness to sustainability:

But wait: history shows us two ways for an indebted state to leave delinquency. One was demonstrated by the British Empire in the 19th century after its expensive wars with Napoleon. It is the slow method that is now being recommended to Greece. The Empire repaid its debts through strict budgetary discipline. This worked, but it took an extremely long time. For over 100 years, the British gave up two to three percent of their economy to repay its debts, which was more than they spent on schools and education. That didn’t have to happen, and it shouldn’t happen today. The second method is much faster. Germany proved it in the 20th century. Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief.

And specifically on Germany and debt relief.

After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.

We come, then, to the actual referendum, its portrayal, and its aftermath. A referendum in which the country, for better or worse, voted to reject external austerity measures – measures that are now apparently being imposed regardless.

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Germany and Finland pull no punches in describing Greece as recalcitrants spoiled by years of access to other people’s money – and for that, apparently, they should suffer. Without recognition of the change in administrations or mandates, or the EU’s own culpability in arranging the current crisis from start to finish. But no: the Greeks are portrayed as lazy, entitled and in the midst of a toddler-style temper tantrum. Few articles covered it better than Slovenian political philosopher Slavoj Zizek in the New Statesman:

The debt providers and caretakers of debt basically accuse the Syriza government of not feeling enough guilt – they are accused of feeling innocent. That’s what is so disturbing for the EU establishment about the Syriza government: that it admits debt, but without guilt. They got rid of the superego pressure. Varoufakis personified this stance in his dealings with Brussels: he fully acknowledged the weight of the debt, and he argued quite rationally that, since the EU policy obviously didn’t work, another option should be found.

Zizek goes on to explain the implications of the Grexit crisis for democracies around the world:

An ideal is gradually emerging from the European establishment’s reaction to the Greek referendum, the ideal best rendered by the headline of a recent Gideon Rachman column in the Financial Times: “Eurozone’s weakest link is the voters”.

In this ideal world, Europe gets rid of this “weakest link” and experts gain the power to directly impose necessary economic measures – if elections take place at all, their function is just to confirm the consensus of experts. The problem is that this policy of experts is based on a fiction, the fiction of “extend and pretend” (extending the payback period, but pretending that all debts will eventually be paid).

Nobel-winning American economist Paul Krugman put it into similar terms in the New York Times, referencing a hashtag that became wildly popular on twitter:

Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.

Simply put: America has a huge stake in seeing the European project succeed and has been noticeably, conspicuously silent about what looks to be a new type of regime change and denial of another country’s sovereignty and democracy imposed by central authorities. That the central authorities involved are some of our most important allies seems to be more important than the concept of democracy.

Beyond that: the humanity here is important as well. Austerity offers no comforts for the group upon which it is imposed. The austerity Greece has dealt with for years now results in trends like a massive uptick in child poverty and material deprivation between 2008 and 2012. The referendum stood as a reaction in large part to not just graphs, tables and statistics like that but the lived experience of economic hopelessness. A lived experience likely to worsen if Germany, the International Monetary Fund and the European Central Bank have their way in a country removed from its own decisionmaking process.

One of the most important factors I’ve seen help raise people up from harsh conditions is a sense of agency, a sense that they’re aware of, can control and execute their own actions and change those conditions. Write their own story. And that is explicitly what the European Union seeks to deny Greece.

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