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Grexodus: A Complex Morality Tale




The dance between Greece and her creditors has been extended for a few more weeks. The IMF has already confirmed that the Fund’s rules allowing debtor countries to regroup “multiple principal payments falling due in a calendar month.” Those rules were last invoked in the 1970’s by Zambia. Thus the June 5th payment has been delayed until June 30th, when Greece will then have to repay 1.6 billion euros. [1]

As such, Greece has avoided both a default and showing her hand regarding the whether it actually had the money or not to make the 304 million euro payment today. It is not outside the realm of possibility and it would have been a good negotiating tactic to say they didn’t have the money even if they did. However, such a bluff only works once: so the Greeks are surely glad the bluff wasn’t called.

Greece is not out of the woods yet; they owe money to more people than just the IMF. There is a redemption of Treasury bills due on the 12th of June for 1.2 billion euros – but since these are all held by Greek banks, they will undoubtedly be rolled over. debt


Which means that the next big date is not the 30th of June and the IMF, it is the 20th of June and the ECB and ESF funds that must be repaid. A paltry 25 million euros is due the ESF – there is surely money for that; but Greece will not be able to repay the more than 3.4 billion due the ECB. What to do at that point will be a purely political decision: continue “extend and pretend” or bring down the hammer. It depends on whether the Greek negotiators have completely caved in to the EU diktat  or are still putting up resistance.

Speaking with a friend the other day, I was reminded that it was still worthwhile thinking about the origins of this impasse. Too many media sources and too many people who rely on them follow a simple argument that looks like a morality play. The Greeks were bad. They lied. They took the bailout money, generously provided by their European partners, and then didn’t live up to their side of the bargain. They voted in these “radical leftists” from Syriza who are trying to renege on everything and they need to have their feet held to the fire to make them pay up the money they we. This is all about finance, it has nothing to do with politics or national sovereignty. Please hit the “Repeat All” button.

I just don’t like or trust simple narratives; they’re almost always wrong to some important degree.

Let’s take a look at the narrative of this tragi-comedy. There’s truth on both sides:

– The Greeks borrowed irresponsibly before 2010. Yup. But the Germans lent irresponsibly too. Shouldn’t lenders bear the risk of their bad loans? Germany felt they didn’t want a financial crisis of their own so they exported it. Spain borrowed far more and more irresponsibily than the Greeks – their housing bubble was even larger, but they’re kowtowing to austerity so their sins are forgiven;

  • The Greeks lied to get into the EU. They sure did; they cooked the books like a 5-star Michelin chef. And the EU knew it. There were plenty of voices arguing that the Greeks were no where near meeting the admission criteria. So why did they let them in? Partly because of hubris: the EU didn’t think it would matter. Nobody gave a damn about Greek corruption; it was only 3% of European GDP right? What could go wrong? Also, having Greece – birthplace of democracy! – in the EU would add prestige and legitimacy to the project. Finally, there were good self-interested economic reasons: the more markets in the EU, the more Germany could export, and since 50%+ of German exports go to the EU that’s an important consideration. All those uncompetitive Greek businesses and state-owned enterprises: the Western Europeans confidently expected to buy them all up as they had done in Eastern Europe in the previous decade. Why else is privatization such a high priority – privatization even of industries that are turning a profit for the public owners;


  • The Greeks borrowed irresponsibly before 2010 so they’re to blame. Very true. Nations like Greece, Spain, and Portugal, with high historical interest rates, suddenly enjoyed a significant drop in their sovereign risk rating as well as a flood of savings from German, Dutch and Belgian banks that were keen on moving their deposits into more lucrative markets. So if the Greeks borrowed irresponsibly, there was a Germans counter-party that lent irresponsibly too. Shouldn’t lenders bear the risk of their bad loans? Germany felt they didn’t want a financial crisis of their own so they exported it to Greece. The 2010 bailout was a morally acceptable way to sell it to the German public: “we didn’t bail-out our banks, they were fine; we had to bail-out the profligate Greeks;”


  • The Greeks took the bailout in 2010 and now must live up to the terms. Well…. see the above comment regarding the mixed moral hazard involved. In a “pure” free market situation, the Greeks would have defaulted and been punished by their exclusion from international credit markets; but the German and other European banks that had lent to Greece would have become insolvent and been punished by being wiped out. By intervening, the Europeans saved Greece from default, but they also saved their own financial systems from collapse. So this is not a one-sided obligation. Furthermore, the Greek people have a strong argument to make that they never actually accepted the bail-out terms. Their elected leader, George Papandreou, accepted the terms on their behalf, but under extreme duress, if not outright threats. When he returned to Athens, he decided that terms so strict could only be accepted by a clear mandate from the people, and so he announced his decision to call a referendum. He was immediately forced out of office by pressure from the European Union and ECB, then under Jean-Claude Trichet, who threatened to collapse the Greek financial system if the referendum wasn’t called off. Sound familiar? Papandreou was replaced by a Lucas Papademos, a “technocrat” and former ECB vice-president and confident of Trichet. So the Greek people never accepted the bailout terms and their elected representative was forced out of office. The man who actually accepted the bailout was never elected and was essentially an ECB stooge.


  • The Greeks haven’t done enough and need to do more. Well, let’s see. Germany has dedicated about 2.5% of GDP to “saving Greece,” also known as the backdoor bailout of their own banks. Meanwhile, the Greeks have sacrificed 30% of their pre-crisis GDP in living up to the terms of the bargain they never agreed to. Who has done more? And who has capacity to do more? The Greeks have been through hell, and they are being told that their only choice is hell for the rest of their lives. Is it really surprising that they should demand a renegotiation of that sentence?


  • The Greeks have corrupt, oligarchic, institutionally weak and inefficient public institutions and so they deserve what they are getting. Greek government is not a paragon of anything, that’s true enough. It might have something to do with those decades of military rule, supported by NATO, after the Greek Civil War in ’49. Generals are not noted for their transparency, rectitude or liberalism. It is the same story in Spain: the country is still under the shadow of Franco and a lot of the worst abuses are direct related to the legacy of fascist institutions and policies.


This  narrative is convenient; blame games always sell well domestically and moral outrage is a good way to justify the brutal callousness towards a fellow EU member. But the case is far more morally ambiguous than the mainstream media lets on, nor is this a simple question of a “debt owed must be repaid”. In the end, this is about dealing with the political challenge of Syriza to the EU establishment. That’s why even the French Socialists and Italian center-left government are opposed to Tsipras. Europe – not just Germany – is smashing Syriza on the head as a lesson to Podemos, to the 5-Star Movement, to the National Front, and to anyone else who might question EU establishment orthodoxy. “A vote for them is a vote for national suicide, a la grec“.

Yet this strategy seems unlikely to succeed. The more that Europe demands conformity in spite of differences between the national economies, the more likely people are to vote for change. And every time the EU browbeats a democratically elected government into compliance against the expressed wishes of the electorate the more likely people are to turn against the European project as wholly undemocratic and illegitimate. Rather than serving as a salutary lesson, the destruction of Greece is likely to harden attitudes against “the Institutions”: unelected, unrepresentative, and tyrannical. Brexit is more likely to happen because of Greece; Marine Le Pen, Beppe Grillo and Pablo Iglesias [2] are more popular because of Greece. Europeans are increasingly demonstrating by their ballots that they don’t want to live in “Mitteleuropa”: this is a message that Brussels ignores at its peril.


Sources and Notes

[1] “Greece to delay and bundle debt payments, IMF announces,” Euronews, 04 June 2015

[2] Leaders respectively of: the National Front (France), the Five Star Movement (Italy) and Podemos (Spain)

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