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The Real Greek Crisis

VaroufakisMost people will feel that they don’t need to look far for an explanation as to what lies behind the Greek crisis. Lazy reporting and racial stereotyping will persuade them that the Greeks – a feckless lot, no doubt – have spent more than they should, got into debt, taken out loans from the hard-working Germans and now won’t repay the loans because they refuse to tighten their belts.

But there is another narrative that tells a somewhat different story. That story is one of a powerful economy enforcing its will on its weaker neighbours and refusing to acknowledge that it has thereby made it impossible for them to dig themselves out of a hole.

The story begins at the turn of the century when the Greeks, along with many others, were persuaded that being part of Europe required them to give up their own currency and accept the euro. A single currency meant a single monetary policy and a single central bank – and guess who decided what that policy should be and what the central bank should do?

Germany, by far the most powerful economy in the euro zone, ran it to serve its own interests, but life wasn’t so easy for the weaker countries. The Greeks, for example, with their smaller and less developed economy, had no chance of surviving the competition from efficient German manufacturing. We do not need the benefits of hindsight to make this point, since many commentators, myself included, foresaw the inevitability of this outcome at the time.

As things began to go wrong, and they had to borrow to keep their heads above water, the Greeks were assured that they could look to the Germans and others to help them out. But this was in the days of cheap and plentiful credit; when the Global Financial Crisis struck and the cheap credit dried up, the creditors who had happily lent to the Greeks wanted their money back.

The Greeks didn’t have the money. But the price they had to pay for borrowing yet more from the IMF and the European Central Bank was to accept a programme of savage austerity. The cuts they have already been forced to make have meant that 25% of the Greek economy has simply closed down and 60% of young people are without a job. Again, as some commentators observed at the time, it was impossible to see how the Greeks could ever – from an already weak economy that is now so much smaller and still going backwards – find the resources needed to repay their debts.

And so it has proved. The price that creditors insist upon for a continued bail-out is yet more austerity which can only mean yet more closures and unemployment. Leaked papers show that the creditor institutions themselves recognise that more austerity will make it even less possible for the Greeks to pay back their debts.

So why are the Germans and other creditors determined to force the Greeks into such a damaging dead end? The answer is that they care little for the travails of the Greek people. Their focus is on those countries that are watching the Greek situation closely – countries like Spain, Portugal, Bulgaria, even Italy, that have faced similar problems, and suffered similar penalties, but that have not yet been compelled by pressure from their populations to resist a further descent into even more austerity.

The fear from the financial establishment and from the Germans in particular is that the Greeks might find a way to demonstrate to other similarly afflicted countries in the euro zone that there is a way out – and that those other countries would then follow a similar course. The rational course for the Greeks to take, after all, would be to leave the euro zone, restore their own currency and then print the drachmas needed, as monetarily sovereign countries are able and entitled to do, and repay their debts in devalued drachmas.

The difficulty that Greek Prime Minister Tsipras faces is that he has committed to resist austerity but also to retain the euro. It is doubtful that he can achieve both. In the forthcoming referendum, no one can be sure whether the dislike of austerity or the fear of leaving the euro zone will prevail. The poor and the unemployed – those who have suffered most from austerity – will vote to reject the new bail-out offer; the holders of assets and the pensioners will vote to stay with the euro.

Either way, the outlook for the euro looks bleak. In the long run, the attempt by the financial establishment to over-ride the wishes and interests of ordinary people and to negate the power of a democratic government to protect them will fail. The only question is as to how many more crises there will be and how much more suffering has to be endured before common sense prevails.


  1. Mervyn Hyde says:

    The first comment to make is, this is why the Labour Party is in decline, we have lost the real thinkers like Bryan Gould.

    Heartily agree with everything he says, Syriza can’t achieve both aims because the Neo-Liberal leadership in Europe want to break syriza.

    The other moot point is why they are pursuing their agenda to the point of destruction itself. Meaning that Neo-Liberalism is shrinking the states of Europe and in that I do include Britain.

    The reason of course is China and India we can’t compete and the east is now regarded as the workshop of the world controlled by powerful financial institutions in the west.

    Once we all realise that we can start addressing what our needs are and how we can fund it.

    Iceland is way ahead of British thinking and are already putting a bill together that will put debt free money into their economy.

    Greece is in the right political place at the moment to achieve the same objectives.

    1. Neil Stretton says:

      Completely agree with your first paragraph Mervyn. How much better the Labour Party would have been in economic policy if Bryan Gould had won the Leadership instaed of John Smith (though I know that is a bit difficult for many to comprehend !). Bryan has also had a wonderful grasp of how to make macroeconomics work for the good of the country – and how to reshape Keynesian thinking for the 21st century. He still makes a valuable contribution, which the Party (and the current Leadership candidates) would be wise to listen to.

  2. Sandra Crawford says:

    There is a very good piece about Greece here(also from down under), by Bill Mitchell, a brilliant post Keynsian MMTist.
    Like Bryan Gould, he routes their problem in giving up their own sovereign currency, which would give them the Keynesian route out of austerity.
    As a primer, there is a lecture here that helps understand the importance of keeping sovereign currency issue.
    Also a humourous but clever video here, put together by professors of MMT economics.
    I think it is a very important education for the left. If we can’t understand and use this alternative who will?

    1. Mervyn Hyde says:

      What surprises me is that so few on the left appear not to know about it or too shy to say anything about it.

      Henry Ford said at dinner for Businessmen around the time of the Wall street crash, “that if ordinary Americans understood how the Banks made their money, there would be revolution by the morning.”

      Well the cat has been out of the bag for a couple of years now, so where are they all?

      This guardian article explains this in detail by the very good David Graeber

  3. swatantra says:

    This so called Govt hasn’t even got a majority of seats in the House; its a coalition. If thy can’t reach a deal with the rest of Europe then they should resign and let someone else have a go.
    And they are misleading the Greek People if they think they can delay austerity. The longer they procrastinate the worse it’ll get for the people. The interest rates of their creditors are going up all the time.
    As for Iceland, they let down lots our investors with their generous 8% interest rates. And its very easy to print money, but where’s the security to back it up?

    1. Matty says:

      What do you mean delay austeriy? They’ve had 5 years of it and it’s been a total failure. In 2010 the troika predicted a slump of 6%, instead the economy contracted by 25%!

      1. Mervyn Hyde says:


        He’s just a Troll.

        1. gerry says:

          Mervyn – don’t personalise issues: I have been a commenter on Left Futures for a few years now, and Swatantra isn’t a troll: he just has a different view about austerity, and his view may be the majority view of people in the UK…your arguments, and that of Sandra and David, have convinced me of the truth of your ecomonic case: now others have to be convinced – on a. massive scale.

          1. Mervyn Hyde says:

            Thank you Gerry, I am sometimes a little over zealous when I see the same doctrinaire quotes, and see Tories under the bed, as with the commonly used CIA tactic of misinformation as tool to divert attention away from the real issues.

            In answer to your question as to why Syriza aren’t spelling out these policies, is probably because of the weight of power against them, and that if they were to free themselves from the Euro they might look a little closer at it, and yes I am sure they know about modern monetary theory, although it is not theory but fact as to how money and wealth is created.

  4. J.P. Craig-Weston says:

    Good article, much of which I agree with although it completely fails to account for America’s mission to world, AKA, neolibral economics; in fact it a matter of policy for there World Bank and the IMF and their other subordinate cats-paws such as the EU, that they will do everything within their considerable power to undermine or otherwise wreck any socialist or nationalist government wherever it may be found and this has been the nub of American foreign policy which they pursued relentlessly for the lat 60 years, from the economic blockade of Cuba to their failed social experiment in South Vietnam and so on.

    So, “In the long run, the attempt by the financial establishment to over-ride the wishes and interests of ordinary people and to negate the power of a democratic government to protect them will fail ?”

    In fact modern history teaches almost exactly the opposite lesson. That as often as not, as now here in the UK, it’s quite likely that they’ll once more succeed in over-riding the wishes and interests of ordinary people and in negating the power of a democratic government.

  5. gerry says:

    Good article.

    I have learned much about economics from articles on Left Futures and other sites, and I also have learned from commenters like Mervyn Hyde, Sandra Crawford and David Ellis (his recent commentary on the Greek euro crisis and proposed remedies are superb and easy for all to understand) about modern monetary theory, and their anti austerity case seems pretty much unanswerable.

    Syriza’s top echelons are full of economists though: why haven’t they done – or at least tried to do – what David, Sandra and Mervyn have outlined? Sure!y they must know about these way outs for their economy?

  6. Barry Ewart says:

    Yes a Professor of Economics in the recent New Statesman puts it very well, Greece is now having to borrow more money from the IMF to pay the IMF back!
    Need a Debt Confence to write off the debts of Greece and other struggling EC countries, for a fresh start.
    Nobel prize economists Krugman et al are calling for quantitative easing to be used for state-led public investment to restart the EC economies but I would add and more democratic public ownership, wealth taxes, a significant EC Financial transaction tax & a Common Corporate Tax.
    Germany by the way according to the latest New Left Review is being mainly sustained by engineering exports to the likes of China but apart from this sector there has been years of wage suppression in Germany.
    It is argued the EC was originally set up to counter the the USSR, to promote capitalism in Europe, & to give Europe a more independent voice against the dominance of the US but with Britain’s entry the dollar was soon to dominate (hence the desire for some for the Euro).
    Solidarity with Greece!
    Write off the debts, reform the top down EC, and kick Neo-Liberalism out!

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