Greek Finance Minister George Papaconstantinou has the European Commission over a barrel and doesn’t even know it. Instead of dragging the EC over the coals–like he should –he’s carrying on like a blubbering crybaby. “Steady on there, Georgie”. Treasury Secretary Hank Paulson didn’t go wobbly when he stormed up Capital Hill and demanded a $700 billion TARP bailout, did he? Well, then, at least learn from history. The EC is not going to let Greece default and trigger another Lehman Brothers-type meltdown. That won’t happen. If G-Sax and JPM are Too Big To Fail (TBTF), then surely Greece is too. That means the Greek Finance Minister needs to summon his courage and hammer out the best deal possible for his country. Wishy-washy will get you nowhere.
Markets started tumbling this week on news that Fitch Ratings cut Greece’s debt rating from A- to to BBB+ which means it will cost the government more to roll over its debt in the future. It also means that the ECB may not accept Greek government bonds as collateral when they return to the pre-crisis rules in 2011. The ratings flap has reawakened Dubai fears and the possibility of a sovereign default within the EU.
According to Bloomberg: “The European Commission “stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program, in the framework of the treaty provisions for euro-area member states,” said Joaquin Almunia, who is in charge of economic and monetary affairs, in a statement late yesterday. He didn’t say what form any assistance could take.
Almunia’s comments come as investors debate whether EU governments would bail out Greece if it was unable to pay its bills. Former German Finance Minister Peer Steinbrueck said in February that euro members would “in reality” rescue states in difficulty. Almunia said yesterday Greece “is a matter of common concern” for euro nations, echoing language he has used since November. He didn’t elaborate further.
“The situation in Greece is very difficult,” European Central Bank President Jean-Claude Trichet said Dec. 7. “We all know the figures, and we all know the very important, courageous decisions that have to be taken to put the situation back on track.” (Bloomberg)
Trichet is full of it. The ECB has no cards to play. If the European Commission doesn’t put out the fire fast, global stock markets will tank, the dollar carry trade will reverse, and all the mini-bubbles in commodities, stocks and housing will crash and burn. All Papaconstantinou has to do is thumb his nose at the EC’s demands for “fair fiscal consolidation”, (which is the latest variation on “structural adjustment”) and wait for Trichet and Co. to cave in.
Papaconstantinou’s Socialist government was elected promising higher spending and wages. They should stick with their program and let the chips fall where they may. Within 24 hours, central banksters from around the world will be boarding flights to Athens with valises stuffed with $100,000 bills and loan guarantees begging Papaconstantinou to accept their humble contribution to future Greek prosperity.
There’s no excuse for the Greek government not knowing what to do. The path has already been cleared by trailblazing investment banks in the US which have used the TBTF meme to extort trillions of dollars of public funds. Has anyone noticed Congress demanding that “austerity measures” be imposed at Goldman Sachs? Of course, not. The government has basically been subsumed by the banks, and now provides unlimited guarantees which lower the cost of capital. Greece can expect the same treatment, if the government has the guts to stick up for itself, that is. Here’s how the Financial Times William Buiter sums it up:
“Greece can expect a bail out from the ECB “only at a price,” said Willem Buiter, the former Bank of England official … “They’ll probably go to the IMF, have a credible standby program and then aid from Brussels and bilateral aid from selected sovereign governments in Europe and the U.S. will be available,” Buiter said in a Bloomberg Television interview. “We could see the first all EU-15 sovereign default since Germany had it in 1948.”(Bloomberg)
Buiter is brilliant, but this is nonsense. Greece is not going to default. Besides, the banks created this crisis and now they are using it to impose their neoliberal agenda on the states. The question is whether leftists, like Papaconstantinou, are willing to endure a little pain (capital flight) to defend what they say they believe in. If the Greek Finance Minister truly believes that capitalism is the problem, he’ll never have a better chance to land a few hearty jabs. Here’s Buiter again:
“The massive build-up of sovereign debt as a result of the financial crisis and especially as a result of the severe contraction that followed the crisis, makes it all but inevitable that the final chapter of the crisis and its aftermath will involve sovereign default, perhaps dressed up as sovereign debt restructuring or even debt deferral….
From Dubai to Iceland, Ireland, Greece, Hungary, Italy, Portugal, Spain, Japan, France, the UK and the USA, the sovereign debt burdens have been at current levels during peacetime only on the way down from even higher public debt burdens incurred during wars. (“The intrinsic unimportance of Dubai World and the important wider message it conveys”, William Buiter , Financial Times)
Sure, Greece can go the way of Ireland and push the country into a full-blown depression to fulfill the myth of a unified Europe. It can cut public services, slash government spending, sell state lands and resources, reduce health and education budgets, and fire a few thousand state workers. That ought to satisfy the EU deficit hawks. That ought to satisfy Brussels.
Or they can tell Trichet and the EC to “pack sand” and watch while global markets go down the drain.
Who’d want to miss that?