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Special mention

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Special mention

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While much of the discussion of austerity has recently been about Greece, the United States has been enduring its own version of austerity: through declines in public-sector employment.

As the Economic Policy Institute explains,

public sector jobs are still nearly half a million down from where they were before the recession began. Moreover, this fails to account for the fact that we would have expected these jobs to grow with the population–taking that into consideration, the economy is short 1.8 million public sector jobs.

This shortfall in public sector jobs not only removes the multiplier effect on private sector demand, it also swells the ranks of the unemployed and underemployed, thereby increasing the downward pressure on workers’ wages.



As Joseph Stiglitz has observed,

the economics behind the program that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences


Special mention

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It all started with a simple question about the Greek debt crisis: “who owes how much to whom?”

Well, as it turns out, it may be a simple question, but there’s no simple answer—at least not an answer that’s easy to formulate based on all the simple-minded reporting and background essays available in the media and from various economists.

Most of what I’ve been reading refers to “Greek debt” owed to the rest of the “Europe.” But, with a background in Latin America, I know that for the most part (unless and until the debt is officially restructured) countries don’t borrow from other countries and countries don’t owe debt to other countries.




It’s true that, right now, Greece (aka the Greek government) owes the rest of Europe (aka various European governments) the bulk of the outstanding debt. But that’s because, as a result of the programs adopted in 2010 and 2011, Draconian austerity measures were imposed on Greek workers in order to bailout European private banks. Thus, the level of exposure of private European (especially French and German) banks declined dramatically, leaving European governments (especially Germany, France, Italy, and Spain) and international lenders (such as the European Central Bank, the International Monetary Fund, and the European Financial Stability Facility) holding most of the outstanding Greek debt.

Here’s what the current mix of creditors looks like, in two different ways:





As it turns out, determining the changing pattern of Greece’s creditors is the easier part of the answer. Figuring out the debtors has been much more difficult.


Did “Greece” borrow all that money? From what I have been able to determine, Greek debt leading up to the crash of 2008 was a combination of private and public debt. According to Michael A. Landesmann, and Vladimir Gligorov, private debt growth (mostly from foreign private lenders) was the main driving force in Greece after the introduction of the euro—although foreign private banks also played a large role in financing government deficits (which grew, in Greece as elsewhere, following the crisis of 2008—although more dramatically in Greece, in relation to GDP, once austerity measures were implemented and economic growth actually declined).


The upshot? Basically, Greek private and public debt (prior to the crash of 2008) owed to private creditors has been converted into public debt owed to public creditors.

Here’s what the timeline and total debt structure look like today:

Greek debt


Clearly, both European private banks have managed to reduce their exposure to Greek debtors (and wealthy Greek debtors to their foreign creditors) but only at the cost of having European governments and public lending agencies assume responsibility for the outstanding debt and having the Greek government take on a growing amount of debt that, without a significant write-down, simply can’t be repaid.

It’s obvious that Greece needs to restructure its own economy (including government finances and the banking sector) in order to get out of the current crisis. But the hardline adopted by its creditors, which is designed to send a stark message to other debtor nations in Europe, threatens to overturn the very government that can engage in that fundamental economic restructuring.

And that seems to be the goal of the European elite, inside and outside Greece—to prevent the success of a plan that represents a real alternative to continued austerity.