After the approval of the austerity package

What are the prospects for Greece and the European Union?

July 26, 2011

Last Wednesday, June 29, the Greek parliament approved the five-year package of cuts and tax increases, a condition that the European Union (EU) and the International Monetary Fund (IMF) had demanded, in order to release the installment of 12 billion euros, corresponding to last year’s bailout package. With this vote, Greece immediately escaped (for the northern summer?) the danger of a default of its sovereign debt and the resulting financial and economic fiasco.But this costly victory of the PASOK government could be of short duration: in
the coming months, it will have to make a series of decisions and will find itself subjected to strong tensions that predict the prospect of a severe political crisis and the increasing probability of a default.

An unprecedented semi-colonial advance

The austerity program for the next four years — the second that the Greek government has presented since May, 2010, anticipates fiscal income of 28.4 billion euros and possibly another 50 billion more from the privatization of
state-owned enterprises. Furthermore, it entails a drastic cut in the public sector, with the disappearance of around 150,000 jobs from the 700,000 existing ones, the abolition of different social services, the reduction of spending on health care and on public investments. Regarding fiscal measures, it is demanded of the Greeks that they pay 2.3 billion more in taxes this year (in 2012, the blow will be more powerful, with an increase of 3.38 billion), the imposition of a "solidarity tax," and an increase in the VAT, among other measures.

This increase comes among other measures of an increase in the special tax on heating oil, parity of this tax with that on diesel fuel for trucking, the imposition of a "solidarity tax," proportional to the level of income, of between 1% and 5%, and reduction of the exempt minimum valuation from 12,000 to 8,000 euros. The VAT will also increase in restaurants and bars, from 13% to 23%, and taxes on self-employed professionals, like lawyers,
plumbers, or taxi drivers will rise by 300 euros annually.

But from this unprecedented and Draconian austerity, not seen in western Europe since the crisis of the 1930’s, the measures of the "troika" EU/IMF/ECB (European Central Bank) involves a loss of the attributes of Greek sovereignty. The inspectors from the IMF and the European Union visit the country regularly; they examine the records and dictate policy. In accordance with the new plan, foreign emissaries will be assigned to the main ministries, and they will run the firms that will privatize public wealth. That means a leap in the semi-colonization of a mature capitalist economy within the EU. This is what the President of the Euro Group, Jean-Claude Juncker, said openly, after the approval of the fifth installment of the bailout plan for Greece: "’Greece’s sovereignty will be enormously limited,’ he told the German magazine Focus, in the interview published on Sunday, adding that teams of experts from around the Euro zone were making their way to Athens. ’One cannot allow the Greeks to be insulted. But one must help them. They have said that they are ready to accept the experience of the euro zone,’ said Juncker." 1. And, to clarify the planned looting that is being prepared, he added, "... that Greece must privatize on a scale similar to the liquidation of the enterprises of East Germany in the 1990’s. ’For the next wave of privatizations, they are going to need, for instance, a solution based on the model of the ’Treuhand agency,’ of Germany’ said Juncker, referring to the privatization agency that sold off 14,000 East German enterprises between 1990 and 1994" 2. Let us say that now, in 2011, the government is trying to collect some 5 billion with the sale of OPAP, the monopoly of bets and lotteries, the Postbank, the Water Company of Thessaloniki, the second-largest city of the country, and the Port Companies of Piraeus and Thessaloniki, many of them considered the "family jewels." Between 2012 and 2015, efforts will be made to collect another 45 billion with the complete or partial privatization of the Athens Water Company, refineries, electricity companies, the ATEbank, specializing in the agricultural sector, as well as the management of 850 ports, 39 airports, expressways, rights to operate mines, and state-owned real estate property and plots of land. However, "independent investigations suggest that Greece will have to struggle to get much more than a fourth of the 50 billion euros that it needs from the sale of assets and privatizations, unless it adds more mainland and the cultural heritage to its list of sales" 3 (our italics). Not only are the investors preparing to take the Greek assets at auction prices, but in the context of a prospect of bankruptcy, it is hardly likely that they will buy anything Greek, however dirt cheap it may be, venturing to buy only if quite lucrative assets are being offered them. The sale of magnificent strips of the famous Greek coast and its islands, as the German sensationalist dailies were sarcastically headlining at the beginning of the crisis, could be auctioned off to the highest bidder, as German sensationalist dailies sarcastically proposed, if this semi-colonialist policy, that has the backing of the government and the Greek bourgeoisie, continues moving forward.

Economic and political difficulties for a European Brady plan

But, despite the surrender of the Greek heritage that the plan approved by Parliament signifies, the situation of Greece and the euro zone itself is far from being resolved. Faced with this reality, groups like the Financial Times, a daily of the financial bourgeoisie of the City of London, are increasingly advocating a more radical solution. In the July 4, 2011 editorial, they declare themselves categorically for a "A Brady Plan to end the European crisis" 4. There it sets out that "Not for the first time, the leaders of Greece and of the eurozone have stepped back from the brink only after taking too long a look down the precipice. With the clock ticking toward a Greek default, Europe found the fig leaf of private creditor sacrifice that it needed to commit to more loans. The Greek government passed a new austerity plan, but not before eroding the little trust that it still enjoyed at home and abroad.

The euro zone must cease putting its peoples, economies and financial markets at the mercy of last-minute arrangements. The debt markets’ ostracism of Greece and two other countries will not be reversed by gaining time. The Monetary Union now needs an ambitious and global solution: it must commit to a Brady Plan for Europe. An exchange of debt with guarantees, based on a policy that ended the Latin American debt crisis, is the best option."

In the 1980’s, Latin America suffered a serious sovereign debt problem that endangered the United States financial system, which it finally came out of at the end of the decade on bourgeois terms through the so-called "Brady Plan," referring to the name of the US Treasury Secretary at that time. In this plan, the bank debt was converted to negotiable bonds that had the backing of US Treasury bonds (Brady bonds), which gave the investors security. The debtor countries promised to carry out a series of economic reforms known as the "Washington Consensus." As a result of the implementation of the plan, the debt burden continued to be formidable, but the collapse of the US banking system was prevented. The countries of the region were again able to get financing in the international capital market, at the cost of putting into practice conservative measures that characterized the decade of the 1990’s, with a wave of unprecedented privatizations and an attack in order on the workers’ conquests won in the epoch of the so-called "import substitution" model.

However, a solution like this one still encounters many political and economic obstacles in Europe and is resisted by the most powerful countries of the EU, especially Germany. On the level of domestic politics of the states affected, like Greece, it is seen as an imposition in the service of saving the European bankers. Taking the most acute case of Greece as an example, the reaction of the former European Commissioner and member of the governing party, Vasso Papandreou, who is not related to the Prime Minister, is an eloquent sign. This female legislator, who voted for the austerity plan, told Parliament: "... that she would vote for the laws as a patriotic duty, although she was afraid the economy would deteriorate as a result. ’Germany is paving the way for our official bankruptcy as soon as this can take place without cost for the German banks,’ she said, expressing an opinion largely shared among the Greeks, who say they are going through miseries to save the bankers of Europe" 5. Completely the opposite of the recommendations of William Rhodes, who retired from the presidency of Citibank last year, and who was one of key actors in the renegotiation of the Latin American debt of that decade. In his book, "Banker to the World," he suggests that "It is imperative that the government be able to present the reform program as one of ’national’ origin, to avoid the perception that it was imposed, instead of supported, by a foreign source, whether the IMF or another international financial or political institution" 6.

In economic terms, although during recent months German banks especially have been reducing their portion of Greek debt bonds, it could even be too soon for the European banking system to be able to absorb a solution of this type. This is what the Financial Times editor for Latin America suggests, comparing it with the moment of the implementation of the Brady Plan: "Some people maintain that this plan should have been implemented earlier. If it had been, Latin America could not have suffered a ’lost decade’ of a fall in revenue in the 1980’s, as some countries of the euro zone are risking now. However, both then and now, getting out of a tight spot is a necessary part of managing the crisis. It gives the authorities and the markets time to get their arms around the magnitude of the problem. Still more important, it gives the moneylenders time to increase the reserves in order to absorb the losses that debt reduction involves. In 1982, loans to developing countries, mostly Latin American ones, represented more than two times the capital base of the US banks, according to the IMF. The early passes to loss would have produced a systemic financial crisis in the US. The same is true today in the euro zone. The actions of the European banks are being negotiated around their book value. Since the combined market capitalization of all the entities is 903 billion euros, that suggests that total bank capital is similar.

Regarding exposure, the Bank for International Settlements can offer an approximate figure. The sum of the Greek, Irish, Portuguese, Spanish and Italian debt with European banks is almost 1.8 billion euros. The exposure of these entities to euro zone debt potentially with problems of recovery, could be around two times their capital, which is comparable to what was happening with the US banks in the Latin American crisis" 7. For that reason, faced with this situation, the successive plans approved try to proceed by socializing the claims of bond holders, buying time for the banks. In 2009, the bulk of Greek debt was in private hands. Now 37% is in the possession of of public institutions, like the ECB and the IMF. With every phase of the European bailout, the weight of the debt of banks, treasuries, and private funds, continues to diminish, and the part supported by European public institutions increases. Some analysts calculate that by 2015, that part will have increased to 56%, while the banks will only have 8%, and private insurers, 11%. We can say the same about the two proposals being considered for the Greek debt: the German plan of involving the financial sector in the bill for the bailout, conceived by the Deutsche Bank, the main private bank of the country, against a dismissal plan of 400 layoffs, that does not involve any expenditure; and the proposal from the French banking federation, that focuses on the banks’ promising to support the debt until the due date (July 2011 - July 2014), when they will receive 100% in cash. On the other hand, they must reinvest 70% of what was recovered in the Greek debt, that, independently of the previous securities, will be for 30 years. In turn, it is demanded of Greece that it use part of what it received (30%) as a guarantee of the principal of the debt for 30 years. In this way, the creditors would see their assets protected by the 30% that they reimburse themselves and that can be freely used and by the collateral that the Greek state will buy through a financial instrument (the SPV), which can possibly create profit and, in the worst case, a slight loss. None of the proposals discusses restructuring the debt burden 8, much less real easing of the austerity for debtor countries, that will permit them real growth, in order to become solvent again. Finally, unlike the United States and its Latin American backyard in those days, for the time being, Germany does not appear favorable to a solution of this type.

Fissures in the political and geopolitical bases of the euro and the EU

Despite the fact that Europe as a whole is not experiencing the acute structural imbalances of the US economy, the main epicenter of the current historic crisis of world capitalism, the ability of the European Union to act and react, faced with circumstances of crisis like the current ones, is much smaller. As we have already explained in other articles, this is owing to the contradictions inherent in the process of European construction by the imperialist bourgeoisie, exacerbated by the launching of the euro, that broadened the bases of economic integration, without advancing at the same time in political integration or towards a supranational state, which the current crisis has exposed.

This process of integration is beginning to show fissures that, if they expand, could lead to a collapse of the most advanced achievement of the European bourgeoisie. Next to the economic contradictions, particularly between the countries on the periphery of the euro zone and the hard nucleus, of Germany, the Netherlands, with France playing an intermediate position, the political and geopolitical bases that supported the launching of the euro and the development of the EU are changing.

The imperialist German reunification of 1990 gave rise to a dynamic period of geopolitical change on European terrain, comparable perhaps to what, in its time, German unification under Bismarck signified in 1871. Together with this, other phenomena are taking place, as a series of processes have been developing in Europe, like the debilitation of NATO after the disappearance of the USSR, which was what supported its cohesion. This was seen in the European lack of interest in the failed stabilization of Afghanistan or in the differences that emerged around the operation in Libya, promoted mainly by France and England. Another tendency is towards regionalization of the security alliances, defined around the relationship with Russia, fostered by Germany and France, but resisted by countries like Poland and the Baltic states.

The weakening of the political and geopolitical ties that led to the creation of the EU, could lead to its dissolution. As the Stratfor agency says: "The regionalization of the security of Europe is not a good sign for the future of the euro zone. A monetary union cannot be grafted onto a disunion in terms of security, especially if the solution to the crisis of the euro zone becomes greater integration. Warsaw is not going to give its veto power to Berlin over its expenditure in the budget if both do not agree about what constitutes a threat to security" 9. The fact that it is more important for Germany to maintain its relationships with the center of the EU and central Europe than with peripheral countries like Spain 10, could lead Germany to opt for a regional solution.

All these long-range contradictions are being expressed in the current crisis, especially in Germany’s hesitation over moving forward in resolving the imbalances between northern and southern Europe. Although no European government is interested in a disaster of the EU in the midst of the crisis (as shown by the last-minute agreements they are arriving at and the flexibility of the ECB, that could even go so far as to print currency, facing a possible default and continental and world contagion), German reluctance is a sign of its more long range doubts over its role in the current EU.

The alternative to regionalization could be an EU under the German rod. But this variant is costly, taking into account the fact that the continent was historically crossed by nationalisms that have become exacerbated in the current crisis. Besides, Germany would also have a price to pay. As the security agency quoted above says: "The alternative to regionalization in Europe is clear German leadership that assures, economically and politically, greater European integration. If Berlin is able to go beyond anti-euro populism, that is fed by bailout fatigue at the core of the euro zone, it could continue supporting the periphery and show its commitment to the euro zone and the European Union.... The question is whether Germany takes seriously being a leader of Europe and paying the price of being the hegemonic power of a united Europe, that would not only mean financial bailouts, but also confronting Russia" 11. This is the sine qua non condition that the countries of central Europe would demand. For that reason, the resolution of the German question has a fundamental importance for the fate of the EU.

Towards bigger events and class confrontations

The other big test that the EU has to pass is the growing workers’ and popular resistance to EU austerity plans, that predicts bigger class confrontations which will complicate, as Greece already shows, every bourgeois plan for a way out of the crisis. Some years ago, when the crisis began, and we predicted the possibility that pre-revolutionary situations would open up in several central imperialist countries, most people, even the tendencies of the Trotskyist left, thought we were crazy, . Now, after constant confrontations and violence in Greece, the emergence of the outraged ones in the Spanish state, the French autumn of 2010 that was on the verge of a general strike, and the winds of revolutionary changes that are arriving from northern Africa, the possibility that pre-revolutionary situations will open up in imperialist countries begins to take shape. It is what lucid journalists like Rafael Poch de Feliu are beginning to predict. In "The looting of Greece, a prelude of great events," he states that "The looting of Greece is a purely destructive and short-term undertaking. Beyond an inertial defense of selfish interests, the most likely thing is that the Politburo [referring to the EU, Berlin and the IMF] has no idea where it is leading us. Now it’s a matter of organizing a ’smooth bankruptcy’ for Greece, the least traumatic possible for the entire European system and to continue shooting. Then we’ll see. The horizon is a social collapse in Greece. Current European policy aims at dismantling the conquests and achievements of half a century. It already happened in Latin America; it already happened in Russia. Now they are imposing it on Greece, but after Greece come the rest, first Ireland and Portugal, then Spain, Italy. Afterwards, France appears. Labor and social degradation is evident even in the allegedly successful Germany. We are at the beginning of a conservative and disastrous reaction of the European sphere. I do not believe the Europeans will be as docile as the Russians of the nineties. With its next post-Franco government, with an absolute majority, and its outraged ones, that have come to stay, Spain could be a central scenario ... great events await us." 12.

But one should not make the mistake that this will be the prospect solely in the countries now most exposed to the crisis. A difficult situation also awaits countries like France after the 2012 presidential elections. This is what Eric Le Boucher, the editorial writer of Les Echos, the daily paper of financial capital says. He sets out that the new President, beyond demagogy or current deliberate concealment, "will not be able to propose anything other than blood and tears to his people," specifying that "... in order to reduce the deficit, he must inevitably cut pensions, reimbursements for illness, family allowances, unemployment benefits, social minimum [payments]. He must also decide about the staff of the state and territorial institutions. Also, he will inevitably have to increase taxes" 13. And, quoting the comments of a socialist deputy, the Chairman of the Finance Committee, he adds: "With about 30% of the votes in the first round, I take a dim view of the candidate who wins the election only to manage to reduce debt in France," suggesting the need for a national accord. Any full-scale attack, like those that are being prepared, could again arouse the proletariat and French youth, that have continued to struggle, but under the radar, after last October and November 14, refuting the skepticism of the left and far left, that have done what they could to avoid any continuity with the magnificent struggle against the counter-reform of the pensions.

In other words, all the constituent elements of the first phase of the 1930’s are now present: economic crisis, social disaster, the growth of populism and the far right, the response of the masses, still further behind, regarding the magnitude of the attacks, the specter of xenophobia, nationalism, protectionism. Times of increasing updating of revolution and counterrevolution. We revolutionaries are preparing for those events.

July 7, 2011

1 Reuters, 3/7/2011.

2 The example used by Juncker is already an entire program: this agency was deeply anti-popular, having fired 2.5 million workers.

3 “Greece faces ‘fire sale’ shortfall†, Financial Times, 28/6/2011.

4 “A Brady plan to end Europe’s crisis†, Financial Times, 3/7/2011.

5 Reuters, 30/6/2011.

6 “Europhiles have made the hard decisions on Greece far harder†, John Dizard, Financial Times, 3/7/2011.

7 “Eurozone can learn grim Latin lessons†, John Paul Rathbone, Financial Times, 21/12/2010.

8 According to IMF estimates, Greece will pay 131 billion euros in refinancing payments and interest between 2009 and 2014, much more than the initial bailout loan of 110 billion euros supposes.

9 “The Divided States of Europe†, Marko Papic, Stratfor, 28/6/2011.

10 For instance, German trade with Poland and the Czech Republic alone is bigger than trade with Spain, Greece, Ireland and Portugal combined, in large part because of the integration of these two countries as a base for relocation of German firms.

11 Idem 10.

12 La Vanguardia, 1/7/2011.

13 “Du sang et des larmes », Les Echos, 1/7/2011.

14 Between February and mid-June, there were 777 strikes, according to information appearing in the press, a method that is obviously partial. One can see this report in “France : un vaste mouvement de grèves invisibles†, de Jacques Chastaing. Publicado en