Posts Tagged ‘Europe’


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.


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Seven years after the global financial crash, we’re still in the midst of a full-scale war of finance.

On one side of the Atlantic, U.S. Court of Claims Judge Thomas Wheeler found that former AIG head Hank Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its “unduly harsh treatment of AIG in comparison to other institutions” that was “misguided and had no legitimate purpose.” The ruling basically confirmed the Fed’s right to create a gigantic bailout of Wall Street but denied its ability to actually determine the use of the funds by the “taking of equity” in essentially worthless financial institutions like AIG.

Finance thus continues to win the war in the United States.

And, as Ambrose Evans-­Pritchard [ht: sw] explains, finance is engaged in all-out war in Europe.

Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.

The spectacle is astonishing. The European Central Bank, the EMU bail­out fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.

They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits ­ even if they degrade their own institutions in the process.

The European Central Bank is actively inciting a bank run in Greece and threatening to throw that country out of the euro zone if it resists the demands of the creditors, represented by the troika, without ever seriously considering the proposals put forward by the democratically elected Syriza government.

The truth is that the creditor power structure never even looked at the Greek proposals. They never entertained the possibility of tearing up their own stale, discredited, legalistic, fatuous Troika script.

The decision was made from the outset to demand strict enforcement of the terms agreed in the original Memorandum, which even the last conservative pro­Troika government was unable to implement ­ regardless of whether it makes any sense, or actually increases the chance that Germany and other lenders will recoup their money.

At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.

At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.

The troika, in other words, is acting like a unified debt collector, and is willing to go so far as to threaten to topple a democratically elected government to set an example that, in Greece and elsewhere in Europe, finance is willing to do anything and everything to win the war.


There is something fundamentally unstable—and ultimately dangerous—about the liberal critique of austerity.

Consider the recent essay on “The Economic Consequences of Austerity” by Amartya Sen. On one hand, he correctly criticizes the austerity effects associated with the deficit-cutting measures that have been imposed in Western Europe in the years following the crash of 2007-08 (and reminds readers of Keynes’s critique of the austerity measures the Allied Powers were threatening to impose on Germany in the Treaty of Versailles).

But then Sen accepts, without any further argument, the need for “real institutional reform” in Europe: “from the avoidance of tax evasion and the fixing of more reasonable retiring ages to sensible working hours and the elimination of institutional rigidities, including those in the labour markets.”

In other words, Sen is attempting to distinguish between the “antibiotic” of institutional reform and the “rat poison” of austerity.

The instability of Sen’s formulation stems from the fact that he wants to reject one part of the conservative austerity agenda (dismantling some state programs) while accepting the other (making markets, especially labor markets, more “flexible”). The danger arises because Sen takes as a common sense, without need for any kind of extended argument, that one group of workers should be protected (in the form of pensions of those who have retired) while further costs should be imposed on the other part of the working-class (by raising the age of retirement and creating more “flexible” labor markets for those still working).

Ultimately, it’s Sen’s nostalgia for a time that, in his view, was characterized by “good public services and a flourishing market economy” that leads him to such an unstable and, in my view, dangerous set of propositions. Better, it seems to me, to recognize that that period of public-private exceptionalism has come and gone, undone by the common sense that capitalist growth needs to be preserved at all costs—and to reject not only the rat poison of austerity, but also what Sen and other liberals consider to be the antibiotic of imposing further costs on European workers.


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