There’s a saying about banks and borrowing: If I borrow $10,000 from the bank and subsequently default, it’s my problem. If I borrow $10 billion from the ban, and default, it’s the bank’s problem.
Greece is on the edge of default. All the money thrown at the country in recent times has been expended in the fervent hope that some miracle will happen to make the country’s debt sustainable. European and international financial institutions are in denial of the inevitable default so are merely delaying the day of reckoning.
They are deathly afraid that Greece’s default will drag several large European banks down with them, because that’ll mean ‘recapitalization’, in other words, another bailout. If they can stave off default by loaning the country lots of money (which it’s very unlikely to ever be able to pay back under any circumstances) then they won’t have to give away lots of money to their too-big-to-fail banks. Either way a lot of good money will be thrown after bad and the citizens of the more frugal northern countries called upon to bail Greece out will be just as irate as the Greeks who are being called on to make sacrifices.
There are three basic reasons why default is inevitable. First is that the country’s debt level is just too high. All of the austerity measures taken and demanded so far by the international financial institutions and Eurozone countries who are loaning the money are only reducing the annual deficit, not balancing the budget, so under the most optimistic scenario, Greece’s debt will continue to rise to even more stratospheric and unsustainable levels. Secondly, many, if not most of the measures undertaken to reduce the deficit are slowing the economy, thus raising unemployment, which then increases social costs and reduces revenue and so turns out to be counterproductive; the more austerity that’s enforced or attempted, the closer the country comes to default.
Finally, the people won’t stand for additional austerity regardless of any consequences that might befall the country. Maybe they truly do not understand the seriousness of the situation or maybe they do, but either way they are fighting back to the point where the government will be powerless to act. Maybe the Greek people think default will be better than trying to meet the country’s crushing debt obligations or maybe not, but either way it won’t be pretty. At least under default the slate will be wiped clean, or at least reduced to a manageable level.
Greece’s economic problems, along with those of Ireland, Portugal, Spain, Italy, UK, US and many more countries, goes back to the fundamental ethos of neo-liberal economics that’s held sway in the financial world since Reagan and Thatcher.
Neo-liberalism has three basic tenets. First is the obsession with growth in all situations regardless of the existential circumstances of each country. Second is the insistence on low taxes on corporations and the wealthy. Third is the demand that the actions of the economic establishment be unregulated.
Japan provides the best example of the absurdity and idiocy of the all-growth-all-the-time paradigm. Economists the world over have lamented Japan’s ‘lost decades’ of stagnant economic growth. But Japan is already a wealthy country and it not only has a declining population but also an aging one. If population as a whole is declining and the proportion of the elderly, who typically have less need or desire to consume, is growing then the economy should be declining, not growing. Moreover, if the economy is ‘stagnant’(I prefer the word, stable) in a declining population then its per capita income is actually growing: shouldn’t that be enough? And yet, in a frantic and ultimately futile attempt to adhere to neo-liberal economics the country has amassed the world’s highest debt to GDP ratio - 220% - building lots of bridges to nowhere. If they hadn’t accepted the obsessive growth paradigm they could’ve shared the available work and taken lots of vacations instead of continuing to work the longest hours of any industrial society. They could’ve rested on their laurels, been content with their already wealthy status and started to enjoy life.
The insistence on low taxes for corporations and the wealthy has two major impacts. One is the excessive and destructive speculation that arises from the wealthy having too much money on their hands. The other is the debt that governments accumulate because tax receipts are insufficient when the fat cats are lightly taxed.
Finally, the demand that the activities of society’s economic controllers be unregulated combined with them having more money than they know what to do with brings wild economic swings with inevitable and debilitating busts coming after giddy and unsustainable booms. It doesn’t have to be that disastrous for an economy or a people. Germany experienced a downturn equal to America’s but its unemployment rate grew only minimally. They accomplished that by setting up a program that encouraged companies to put people on short hours with the government making up the difference.
If we were going for sustainability, the good life, spiritual growth instead of blind, mindless consumerism, there’d be neither booms, nor busts. There’d be neither high unemployment, nor widespread poverty. It wouldn’t take much in the way of income redistribution to insure that no American needed to be hungry or homeless. Meanwhile, the poor and middle classes are called upon to sacrifice so that the wealthy can have more tax breaks. And the Repuglicans call it class warfare when the masses object.
Every tax law is a political statement; one way or another somebody is going to have to pay. Since nobody likes taxes and governments are therefore reluctant to levy them, they’ve relied on huge levels of borrowing to make up the difference in the fervent hope that economies will grow enough to make the additional debt payments tolerable. That works until the burdens get too large for governments to sustain and/or inevitable downturns happen because of deregulation and speculation. Either way you’re in a pickle.
Now Obama, our very own Manchurian candidate, is starting to talk tough about raising taxes on the wealthy. Ah, yes, the campaign is beginning and since raising taxes on the wealthy is supported by more than 70% of the American people, it sure won’t hurt his chances for reelection to throw a little red meat to the angry electorate. However, he also made sure to keep his overseers happy by agreeing to cuts in Medicare and Medicaid, saying he wouldn’t accept cuts in those programs without (minimal) tax rises for the wealthy. In other words, slash away wingnut congress, your dream of starting the evisceration hated social programs has been answered.
The world is slouching towards economic disaster because nothing has changed since the 2008 blowout to rein in out-of-control banksters. Witness a ‘rogue’ trader at Swiss bank UBS losing the bank more than $2 billion. You’d think they’d be watching a little more closely or investing a little more conservatively. The certainty of another crash is also indicated by a recent news announcement from the UK that retail banks, where people have their checking accounts, etc., were going to be separated from investment banking, which is no more or less than speculation, a.k.a., gambling. Separation is an absolutely essential change if future bailouts are to be avoided. The problem is that the UK’s new rule is not programmed to take effect until 2019, giving the banksters all the time they need to create another, even multiple, banking meltdowns. Why 2019? Why not 2050? Sure wouldn’t want to unnecessarily rush the banks, would we?
Anyway, there’s always more money in the coffers for bankster welfare… until there isn’t. There will be until the people rise up and say, No more!, regardless of the consequences.