The streets are in chaos. There’s bank runs and people are starting to stock up on canned food. The government is stockpiling arms, Neo-Nazis are marching in the streets and nobody knows what the country, or the wider world, will look like five days from now.
No, this isn’t a replay of Y2K. There isn’t a hurricane on the way, an oil shortage or impending Avengers-style alien invasion. This is the lead-up to the next round of Greek elections. New Democracy (conservatives) and SYRIZA (radical leftists) are tied at the polls, with a serious possibility that anti-austerity parties will win, possibly forcing a Greek exit (“Grexit”) from the European common currency. This has markets around the world in terror, many of which (China, Russia, Italy, Spain, America and others) are in serious peril themselves. It’s being called the “Election Apocalypse”.
I thought I’d heard it all. Apocalyptic doomsaying, after all, is one of my favourite topics. What’s happening in Greece, though, isn’t the (direct) result of climate change, peak oil or devastating warfare. The economic catastrophe didn’t come because Greece resisted the bailouts or austerity – so far the country has gone alone with all the demands, in spite of enormous popular resistance. Austerity failed, dramatically, plunging the country into a far deeper recession. This catastrophe is the direct result of every major establishment institution functioning exactly as it was “supposed to”. The real threat facing Greece represents the first real chance the Greek people have had to put the breaks on this process, an opportunity they should have had a long time ago.
Money is leaving the country’s banking system in droves, both to citizens($1 billion/day) and foreign investors fearful of the re-introduction of Greece’s old currency, the Drachma. Currency traders are already gearing up to deal with it, with the Drachma even accidentally showing up on Bloomberg’s trading board. Unemployment and poverty are at absolutely horrific levels. Strikes are breaking out everywhere, even threatening the elections themselves as municipal workers threatened to strike during the vote. There’s also funding problems within electrical utilities, threatening to plunge a third of the nation into rolling blackouts if it can’t find hundreds of millions for Russian natural gas soon. Oh, and the government bought a enormous stockpile of American weapons earlier this year, more than anybody but the UK and UAE in the first quarter. In short, Greece is collapsing under the weight of it’s own bureaucracies.
Perhaps the most horrifying part of this story is the rise of the Golden Dawn, a Neo-Nazi political party which won enough votes to enter Parliament in the last election. They’ve been involved with brutal attacks on immigrants and others, with widespread accusations of collusion with Greek police. It got worse last week when their spokesman assaulted a female opponent on national television. Warrants are out for his arrest, but he has not yet turned up and is attempting to press counter-charges. In response, massive anti-fascist marches have started taking to the streets, and they’ve dropped dramatically in the polls. All of this is set against a backdrop of growing anti-immigrant sentiment across Europe, in which Greece plays an important role as a geographic gateway to the continent.
If anyone has doubts that this catastrophe was the result of conscious efforts to punish the country, I’d urge them to read this piece by renowned business journalist Hugo Dixon. “Greece needs to go to the brink. Only then will the people back a government that can pursue the tough programme needed to turn the country around,” he argues, by cutting off bailout funds and other supports. These views are very common, and readily apparent to anyone who reads the business press (or actions of the ECB). Of course, if you follow those sourced you’d also know that real economists refute these guys all the time. Right now the Greek people, like those of Argentina and elsewhere before them, are being punished in the hopes that they’ll vote to continue dismantling their country.
The scale of the problem, of course, goes well beyond Greece. Not only have interest rates also rocketed up in Italy and Spain, but Spain is now facing another bailout. Markets around the world, even Toronto, have been heavily battered in recent weeks by the crisis, and (as always) there’s a serious fear that another massive stock market crash is on the way. For what it’s worth – it probably is.
The crisis in Greece needs to be seen for what it is – not the result of popular meddling or anarchist rioting – the onus for this like squarely on bankers and politicians. The ongoing bailouts show the horrendous cost, total ineffectiveness and callous disregard for everybody else. While people lose homes and jobs, banks are being given hundreds of billions to make the same mistakes over and over again, with exactly the same results. We’ve created a system which pays banks hundreds of billions of dollars to fail. Why would they do anything else?
Austerity and bailouts have not worked. They’re based on exactly the same flawed premises which drove the markets to disaster in the first place. The crashes of 2008, 2001 and 1989 weren’t caused by progressive social overspending, they were the result of overheated and deregulated markets where speculation came to dwarf real investment. Then, as now, nobody saw any difference between a million dollars created on paper through stock valuations and a million dollars created through actual production. Because it’s far easier to create value through speculation (in the short run), it became the focus of three decades of public and private economic policy. Until we come to grips with that, any attempt to jump-start failing global markets will hundreds of billions in bailouts and “quantitative easing” (money-printing through low interest rates) will only work toward re-creating these same bubbles. Austerity, the source of these funds, only makes things far worse by making devastating cuts to real public and private value (hospitals, schools, steel mills etc).
For the Greek people, this is a very grim choice. If they vote to stick with the terms of the bailout, they will be stuck with the austerity program which is devastating their country. If they vote to abandon it, the short-term chaos will be far worse, and likely spread far beyond very quickly. Either way, there’s a very real chance that the Greek Parliament will burn to the ground before this is over. If so, it’s leaders will have none but themselves to blame.
We all need to learn from this this Greek tragedy, before we all repeat the same mistakes and find ourselves facing a similar nightmare.