Euro destroying Greece

One century of troika debt regime
by Antonis Ragusis, United People’s Front (EPAM)
Following speech was held at the European Forum "Beyond the Euro - there is an alternative", 20-24 August 2014, Assisi, Italy, at the session on Greece.

First of all and prior to proceeding to the main body of this speech I wanted to express the General Secretary’s gratitude for your invitation. Dimitris Kazakis personally and The United People’s Front (EPAM) as a whole are humbled and honored to be invited to become a part of this convention and join forces with likeminded people from all across Europe. Unfortunately, due to Mr. Kazakis’ heavy schedule he wasn’t in a position to actively participate in this convention himself but he wanted to thank you personally for the invitation.

One of the most quoted remarks made from Karl Marx is the well known phrase regarding history. Heavily influenced by Hegel’s notion regarding history, Marx in his ‘The Eighteenth Brumaire of Louis Napoleon’ stated that "History repeats ... first as tragedy, then as farce". In our case throughout Greece’s history the country has already experienced the tragedy of the Troika once (for nearly 80 years in fact) while at present the country is experiencing the farcical part of this circle with the Troika’s return under a new name but representing the same interests as it did in the past.

Greece’s love affair with the troika started in 1898 when the Treaty of Constantinople was signed between Italy, Austria, France and Sultan Abdul Hamid II. It was agreed that Greece should pay 92 million Drachmas or 4 million British Pounds (when the country’s total assets were estimated to be 100 million Drachmas) as reparations for the Greco-Ottoman war of 1897 (which was provoked by the British). Part of the agreement was that an International Financial Commission (I.F.C) would oversee the country’s government in order to ensure that the reparations are paid in full along with the country’s existing outstanding debts. In other words, 4 years after Greece’s 3rd official bankruptcy the British provoked a war which was destined to be lost in order to justify the existence of the I.F.C which would in return ensure that the Greek debt would be repaid in full. This was the first time that an official troika was appointed for Greece. The International Financial Commission was essential for another reason as well, that reason being a new loan which was given to Greece. The loan was of 150.6 million Golden Francs with an interest of 2.5% out of which 94 million were used straight away in order to pay the reparations to the Ottoman Empire while the rest were used in order to cover the budget deficit and repay some of the existing overdue debt.

Even in the late 19th century when war as a means of violent imposition of the will of great powers against weaker countries was usual, the indirect weapon of debt was preferable when available. The I.F.C made sure that no part of the debt would be repudiated even though the country had already went bankrupt for three times till that point (1827, 1843 and 1893) and that via the use of the argument that the debt has to be paid in its entirety, measures should be taken and policies should be implemented in order to facilitate the repayment of the debt.

The I.F.C officially left the country in 1978 while in 1926 the Financial Committee of the League of Nations joined the I.F.C in order to assist it. Under the commands of that newly formed Troika with its latest addition, the country adopted the Golden Drachma which according to the Gold Standard (to which the Drachma was introduced) set a fixed exchange rate of 1 British pound = 375 Golden Drachmas, operating as a hard currency for the country’s economy which in order to be supported, new loans in Gold were required. As a result of the Troika’s overall supervision in these 80 years, the country went bankrupt for the 4th time in 1932, the measures taken included the reduction of the public sector by 1/3 (out of 47 thousand employees) most of them being employed in the health and education sectors, the privatization of water (sold to the American company ‘Cooper’), the privatization of energy (sold to the American company ‘Powers’) and the privatization of agricultural sector (sold to the American company ‘Foundation’), two military juntas took place (in 1936 and in 1967), the country’s national debt kept on increasing instead of being reduced and a new Private Central Bank was established in 1928 (the Bank of Greece) which was modeled after the Bank of England in order to control the country’s economy and ensure the currency’s stability. An interesting fact though is that the Bank of England was nationalized in 1945 while the Bank of Greece till today remains private. The Troika’s dogma according to which the economy was operating was that the country’s national debt should be paid in full, the state’s budget should be balanced, privatizations are essential (more of them followed under the military junta of 1967 as they signed agreements with German companies Krupp, Thyssen and Siemens this time) and that a hard currency should be introduced and supported.

Today, not a lot have changed as the second part of the circle (the farcical part) takes place. In 2002 a new currency was introduced to the country, the Euro. The Euro is a hard currency (no manoeuvring is allowed in terms of its exchange rate as the exchange rate is regulated by the currency market) which can’t be used for public investment without adding new debt as the European Central Bank (ECB) literally sells the currency to the private central banks of each country which are distinct parts of the Eurosystem. The Euro was designed to be introduced as a new reserve currency which would be used worldwide as a stabilizing factor and counterpart for the US Dollar (USD). The equilibrium created between the Euro and the USD would offer to the financial market investors a stable financial environment which would benefit their investments but the same didn’t apply to the real economy and particularly that of countries which were using the Euro as their primary currency. Being a reserve currency it had to keep a relatively stable and high exchange rate as it was designed to be primarily beneficial for the financial markets not taking into account the real economies of the countries which were using it as their primary currency. As a result, the use of a currency which didn’t reflect the unique needs, character and potential of the economies which were using it (its value was purely based on its Demand from the financial capital markets worldwide instead) while at the same time the currency itself couldn’t be used as a tool accordingly in order to deal with fiscal and budgetary problems which the countries using the Euro were facing, resulted in the deterioration of the already existing problems faced by the Eurozone’s weaker economies and the increase of accumulation of wealth by countries with stronger economies.

Countries within the Eurozone which had a capital and production surplus were particularly benefited while countries with corresponding deficits were forced to take loans in order to cover the deficits and try to close the competitiveness gap between themselves and the other countries within the Eurozone. The free movement of capital within the Eurozone and the lack of any protectionist measures (taxes and quotas) against imports from within the Eurozone led to the destruction of their production sectors increasing their dependence from imports. Contrary to industries related to the real economy, the banking sector has largely benefited from the introduction of the Euro as within this decade the banks have managed to increase their assets to a point where today their assets are almost 4 times greater than E.U’s GDP.

What needs to be to be clarified is that the crisis which Greece is currently facing does not originate from the actions of a prodigal government or from the effects of a fiscal problem which could be solved through the implementation of measures of re-adjustment and reductions in government expenditure. Greece went bankrupt due to its excessive national debt as a result of the bankruptcy of its own economy which for the past decades has been suffering from the implementation of a model based on which an economy should grow through concentrating on being extrovert and as it follows that economy should obey to the decisions made by the international financial capital markets.

During the previous decades in Greece, as long as the dogma of free markets and deregulation was applied, the Greek economy was becoming a parasitic economy which concentrated on providing cheap services. As a result Greece depended even more on the fluctuations of international financial markets and kept losing ground in terms of its international competitiveness. According to the World Economic Forum and its Global Competitiveness Report, in 2001 Greece was ranked 31st in the world in terms of its competitiveness worldwide while in 2011 ranked 96th (out of 144 countries) less competitive than countries such as Vietnam (75th), Romania (78th), Botswana (79th), FYROM (80th) and Albania (89th). A very characteristic statistic related to the previous statements is that the percentage of the private returns in terms of the total added value within the local economy during these years of the recession reached 59% in 2009. This is a record figure within the European Union as it is almost double in comparison to the weighted average figure which corresponds to the rest of the E.U. members.

Due to all of the above the country’s productivity was severely affected while at the same time the issuing and selling financial derivatives was advocated as a solution. A characteristic statistic indicating this is the fact that in 1992 out of the total foreign private capital which was invested in Greece, 59% was associated with investments in the real economy, 31% was invested in real estate and just 10% was invested in financial investments. In 1995 the figures were 33% towards the real economy, 7 % towards real estate and 60% towards financial assets. Just before the outbreak of the crisis the figures were 10% in the real economy, 1% towards real estate investments and 89% towards financial investments. The result was that figure corresponding to 63% of the total private profit generated from the economy during the last 10 years, was interest.

Greece became a financial paradise on earth for anyone who wanted to sell derivatives and speculate with the Greek debt with the government’s support which was in full accordance to the E.U directives. As a result the national debt faced an incredible increase, the state continued to undertake new loans in order to repay it and consequently the government was transformed into a mere pawn powerless to oppose to any directives given. At the same time, as soon as the production deficit of the Greek economy increased so did private and public borrowing.

Greece did not join the Eurozone by mistake nor is it true that Greece was not ready to join the euro. This was exactly the situation which was the prerequisite for Greece to join the Eurozone. Greece had to have deficits and debts. Production deficits would be supported by imports from countries which had economies based on exporting models (primarily Germany) while debt would be financed by European banks. Germany particularly benefited as Greece was transformed into a garbage can where through dumping, goods of low quality were exported.

With the country’s production capacity totally destroyed while public and private debt still on the rise, Greece ended up being totally dependent on the provision of new loans which acquired from the Eurozone’s own capital market. On December 31st 2001, the Greek debt was 146 billion Euros. On January 1st 2002, Greece joined the Euro and up until the 31st of December 2009 its national debt increased by 152 billion Euros. In other words, within seven years Greece’s national debt more than doubled. Interestingly enough, in 2009 the state’s income was roughly 45 billion Euros and its imports were 15 billion Euros while the income generated from services was almost 27 billion Euros. The corresponding interest and coupons which had to be repaid that year alone were 109 billion Euros!

This situation led Greece on the verge of official bankruptcy. Financial markets were closed for Greece since January 2009 and due to this situation the Eurozone had to intervene in fear of any implications to the currency’s stability itself due to Greece’s inability to repay its debt. In direct collaboration with the country’s two main parties (PASOK and New Democracy) the E.U. officials manipulated the political transition in Greece in order to promote the formation of a new government with sufficient parliamentary majority which would be in a position to guarantee that Greece would willingly implement the E.U’s program. Greece is practically ruled by foreign commissioners as it is certified that all the laws passed and the policies implemented in the country are not even drafted by officials in ministries, but instead are drafted by European Commissioners. Ministers sign them without any objection and then address them to the Parliament for approval.

The results of the policies based on the memoranda were from the beginning disastrous for the country. In 2009 the state’s total debt was 298 billion Euros, or 127% of GDP, the debt increased to 328 billion Euros in 2010, or 143% in terms of GDP, while in 2011 the debt reached an amount of nearly 369 billion Euros, 71 billion Euros more debt in two years, or at 178% of GDP. At the same time, the recession of the Greek economy escalated to unprecedented levels and unemployment along with mass poverty continued to increase while incomes were reduced by 15% as expressed at constant prices.

During the second half of 2011 the Troika decided that a restructuring of the debt through a "haircut" of around 56% was essential as otherwise it would not be feasible to deal with the continuous and rapid increase of the debt. The debt restructuring took place in March 2012, but the benefits promised to the bankers and creditors involved were such that instead of reducing the debt, the debt was eventually increased by 3-5 billion. So while the restructuring through the "haircut" reduced the nominal value of the debt by 106 billion Euros, Greece was forced to borrow 109 billion in order to be in a position to carry out the Private Sector Involvement (PSI). This resulted in an increase in debt instead of a decrease! Additionally, the debt restructuring caused the bankruptcy of the insurance funds and the funds of stakeholders in the wider public sector including institutions such as chambers of commerce, scientific associations, universities, hospitals, organizations, and many more. At the same it should be mentioned that common people who had invested their savings in bonds issued by the Greek government were seriously affected as well.

In order not to become apparent to the Greek people the fraud of the PSI, the Euro group decided to proceed to a Greek Bond buyback from the secondary market in November 2012. The buyback had as its goal to reduce the Greek debt by 30 billion with a cost of 11.7 billion which would have been paid by the European Financial Stability Facility (EFSF) in a form of a short term loan to Greece. In the case of the Bond Buyback something unique in the modern economic history happened as it was the first time in history that a Bond (or share) Buyback was officially announced beforehand! As it follows, banks and hedge funds which held Greek Bonds whose value was significantly reduced due to the country’s inability to repay its debt decided to sell the bonds at a higher price after being informed that a Buyback would take place. It is estimated that the Greek government instead of buying 40 billion in debt with a cost of 11.7, ended up buying 30 billion losing 10 billion due to this benign mistake.

Today, the Greek population fails to meet its tax obligations, the recession is more than 7% per year on average, official unemployment exceeds 27%, investments have fallen below 14% of GDP, the fact that this is the first time in the postwar history of Greece that the disposable income of the population continues to collapse and is far below the minimum level which is required so that a person can survive and the fact that the private debt continues on its increasing trend, compose the picture of the state of absolute destruction in which Greece was brought to by the Troika. This collapse though was well planned, executed and carefully facilitated under the premise of selling out the country’s most valuable assets. Greece is set to be sold out not only in terms of its publically owned property through privatization and concessions but in terms of the private property of the Greek society as well which today is mortgaged not only to banks but also to the state itself due to outstanding financial obligations of the vast majority of the people due to their failure to meet their tax obligations.

The tragedy is that the troika is applying more and more pressure insisting on this disastrous downhill and the leaders of this country have surrendered in advance and without a fight. For the Euro’s and the Eurozone’s sake we are in danger of destroying an entire country and eradicating an entire nation.