Wednesday, July 22, 2015

Greece Has Been Shat Upon With the Dung of the Devil

Over the last few weeks, I could not but help notice the parallel narratives unrolling with the Pope on tour in South America condemning the moral bankruptcy of our present economic system and the arduous negotiations surrounding yet another bailout of the Greek government.  In short, the Pope repeatedly exposed the absence of morality within capitalism and linked it to the exploitation of the poor and the rising environmental crisis encircling the globe.  As Pope Francis points out -- I still find it strange that I would be quoting the Pope, but hey, he tells like it is -- capitalism today is the dung of the devil:

An unfettered pursuit of money rules. The service of the common good is left behind.  Once capital becomes an idol and guides people’s decisions, once greed for money presides over the entire socioeconomic system, it condemns and enslaves men and women, it destroys human fraternity, it sets people against one another and, as we clearly see, it even puts at risk our common home.

Sounds like a pretty accurate description on what is happening in Europe.  For instance, we have witnessed the usurping of Greek sovereignty over its territory, Greece having been reduced to the status of a debtor colony by the German led European Union, which has become little more than an extension of European banking system, that above all protects the interests of the French, Swiss, and German banks.
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The Greek people, on the other hand, are being sacrificed on the altar of maintaining a common currency.  The so called structural adjustments imposed upon the Greeks have just made matters worse: the economy has shrunk by 25%, and young Greeks are leaving the country to seek their fortunes elsewhere, and why wouldn’t they, facing the bleak prospect of trying to find a job in a country where the unemployment rate for the young top 50%.  As well, child poverty is rampant and the suicide rate has skyrocketed.  So much for being a member of the European Union. 

To make matters worse, officials from the European Commission will be in place to make sure that the Greeks continue to liquidate whatever remaining public assets that can be sold off at fire sale prices, the proceeds going to cover a portion of the potential, or should I say inevitable, losses that the European banks stand to incur.

Eventually, there will be a day of reckoning.  Indeed, the Washington based International Monetary Fund has indicated in one its reports that given the present state of the Greek economy, Greece will not be able to meet its debt obligations: “Greece’s debts can only be sustainable with debt relief measures going far beyond what the Eurozone has offered so far.”

In fact, Greece’s accumulated debt has reached 200% of its GDP while its economy continues to shrink.  In other words, the economic activities within the Greek economy do not and, most likely, will not generate sufficient revenue so that the Greek government can pay off its debt.

The former Greek Finance Minister, Yanis Varoufakis, makes the point succinctly when speaking to the BBC. He said that the program that Greece was subjected to “will go down in history as the greatest disaster of macroeconomic management ever.”
Say what you will about the Greek penchant of not paying their taxes, awarding themselves overly generous pension plans, and defrauding the social system, the million dollar question (pardon the pun) is the following: given the present state of the Greek economy why continue to extend credit, three massive bailouts in five years, and continue to pretend that the structural adjustments that to date have utterly failed will somehow miraculously resuscitate and bring the moribund Greek economy back to life? 

Where the dung of the devil seems to be pretty thick is with the German-led banking system.  If there is any nation on this planet that should be aware of the effects of debt relief, it is definitely the Germans, having been crushed by the reparations imposed by the victors of the First World War in the Treaty of Versaille, which many believe that created the conditions that brought about the Second World War, and having been forgiven for their debts during the reconstruction years of the Marshall Plan.  Indeed, the Germans were the beneficiaries of an overwhelmingly forgive and forget attitude on the part of the allies who could have sought their "pound of flesh", which given the scale of the harm the Germans inflicted upon humanity, they could still be paying today and would do so for the next thousand years.

So, where's the love?

It's not as if the German banks were lending the Greeks a portion of the hard gained savings of the German population.  The money that was lent was created out of thin air in writing up the IOU to the Greek government which then reciprocated with one of their own to the consortium of European banks.  Moreover, potential losses due to non-performing loans can be easily removed off the balance sheets by the act of quantitative easing in which the European Central Bank also creates money from thin air and transfers the bad debt away from those banks that were foolish enough to lend funds to the Greek government in the first place, a practice that the American Federal Reserve employed to prop up to the too big to fail banks in the US following the collapse of the financial markets in 2008-09. 

Simply put, the European banks do not want the contagion to spread.  The default of a small member country like Greece would not imperil the solvency of the European Union.  However, other countries like Portugal, Spain, and Italy would do considerable harm to the continued viability of the EU if they too were to default on their debt obligations.  By teaching the Greeks a lesson they will never forget, the aforementioned nations take notice and fall into line with the dictates of the European Central Bank.

The other thing to consider is the exposure that the banks holding the Greek debt have with regard to the derivatives markets.  A default could trigger a chain of massive payments that could freeze the liquidity of the entire European banking system, and, as a result, the entire European economy. 

Perhaps, this is the scenario that needs to be avoided at all costs.  In such a situation, the Greek government's default must be avoided for the time being, and if that means extending credit to a debtor that cannot repay the debt in order to keep the debtor nation on life support for an indefinite period of time, so be it.  In the meantime, the significant extraction of wealth from the Greek economy can be used to hedge against the repercussions of a possible default, even make money if it indeed comes about.

As you can imagine, the Greeks find themselves in an extremely shitty situation.  Regardless of the financial strategies, the desire to make money from money amongst the creditors trumps the productive use of capital in Greece's real economy.  Without access to sufficient lines of credit from its domestic banks, businesses cannot finance their day-to-day operations.  As a result, many of them will simply close their doors, laying off employees in the process, while they contemplate moving their operations elsewhere.  By doing so, the economy continues to shrink as do the revenues of the state and the capacity to service the existing debt.  Caught in a vicious circle, it should not come as a surprise if the pain caused by the imposition of draconian fiscal measures upon the society lead to social unrest and violence.  In the worse case scenario, one the Germans know all too well, the drowning man will clutch upon a dragon and those from the far right will take control of the state. 

What we have been witness to in Europe is the machinations of an amoral political agenda, which organizes the global community into becoming the means to the end of maximizing profit at the expense of the human condition and the health of the planet.  Breaking free from this institutional order cannot be done by simply changing the positions of the economic levers.  It can only be achieved by changing the moral code at the base of our society.

In such a context, what Pope Francis has been saying over the last couple of weeks needs to be taken seriously and acted upon, by Catholics and non-Catholics alike.