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Greek defiance deepens crisis of the system 

Following their decisive vote to reject even more austere conditions to heap upon their current suffering, the people of Greece remain locked in combat with the European Central Bank, the European Commission and the International Monetary Fund.

Both opposing forces have their backs to their respective walls. Neither can give way. They meet again in Brussels in the midst of a deepening global debt crisis whose epicentre could well turn out to be in China.

For five long years Greece has been a test case for the survival of the global capitalist economy, which has long become addicted to, and dependent on credit and debt. Without an exponentially increasing amount of debt, growth in the global economy, which has failed to recover to pre-crash rates, would long since have ceased altogether.

As has been the case almost everywhere, Greece acquired its huge public/government debt following the global crash in 2008. Unserviceable and unrepayable loans produced a worldwide, systemic crisis of failed banks and financial institutions.

Saving the system then meant bailing out the private banking conglomerates and transferring the “problem” to governments and central banks, who, under pressure from financial markets, in turn transferred it to their populations, their people. 

Bail-outs for Greece have simply provided them with the funds to make payments to creditors, whilst adding to the debt mountain. The money hardly touched down in Greece before heading off for Germany. 

It’s not only in Greece that debt – at 177% of national output (GDP) – has continued to soar, despite deep cuts in government spending. High debt levels are widespread. In 2014, gross debt as a share of GDP was 132% for Italy, 246% for Japan, 95% for France, and 105% for the United States, according to the IMF. Whilst it’s been the “hard choices” of austerity for the majority, global debt has continued to spiral upward on the warming currents of quantitative easing.

From 2007 to 2014, worldwide government debt rose $25 trillion or roughly three-quarters. Debt levels across the eurozone continue to rocket, with the monetary bloc’s debt reaching nearly 92% in 2014 – the highest level since the single currency was introduced in 1999.

Debt

Some 13 EU nations saw their public debt accelerate at a faster rate than Greece’s over the three year period to the end of 2014, while five have debts standing at over €1trn: Germany, Italy, the UK, France and Spain.

Historically low and now negative interest rates have favoured investors but failed to excite them into revving up the global economy, because the rate of profit just won’t respond. So growth has slowed. From 1997 to 2006, US economic growth averaged 3.3% annually, says the IMF; from 2010 to 2014, the average was 2.2%. In the eurozone, the figures are 2.3% and 0.6%. As global demand shrinks and prices drop, China’s growth too has slowed, to 7%, its lowest for six years.

So why are the Greek people getting the treatment? Relatively isolated from global trade, and constituting only a tiny part of the European economy, and therefore likely to result in minimal contagion, the Greek republic has become the laboratory for experiments testing the limits of the determination of its people to preserve what’s left of their dignity. But the global crisis isn’t waiting for the results of the experiment to be fully assessed.

On the same weekend that the referendum in Greece pitted democracy against the needs of the bankers – and driven on by its result – the crisis of the system erupted across the scale elsewhere. At one end it was tiny Puerto Rico, declaring its debt of $72 billion unrepayable.

At the other it was China, taking emergency action to stem the collapse of its stock markets, using its housing stock as collateral, and steering, as Bloomberg put it, towards a subprime economy.

And the world is in the grip of a deflationary spiral, which only adds to the crisis in the global economy.

the Greek debt crisis is itself the sharpest expression of the break-up of a whole system of social, economic and financial relations
aka capitalism

Under these conditions, there is precious little room for manoeuvre between the Greek government and the hard-nosed leaders of the major eurozone economies. They are trying desperately to keep the euro afloat without precipitating another worldwide meltdown. If they have to cut Greece adrift if it helps their cause, they won’t hesitate to do so.

This is not, as Alexis Tsipras, the Greek prime minister, suggests, simply a crisis of the European Union and its failure in terms of democracy when it comes to victims of austerity choosing a different course.

The Greek debt crisis is itself the sharpest expression of the break-up of a whole system of social, economic and financial relations – aka capitalism. By defying the Troika, the Greek people have intensified that process and become part of a growing movement against the system itself.

Gerry Gold
Economics Editor
7 July 2015

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