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When the bail-outs don’t work, what then? Part 1

Greek debt | When the bail-outs don’t work, what then? Part 1 Anthony Harrington

At the time of writing Greek default looks just around the corner. This is despite the belated efforts of Europe’s senior political leaders to finally clear the way for a promised 12 billion euro package which will give Athens sufficient funding to get out of its immediate jam. More and more voices are calling for default to be allowed to happen.

Andreas Whittam-Smith, writing in The Independent, puts the case succinctly: “The Greeks can’t pay and won’t pay, so let them default”.  According to him, there is no way the Greek Government is even going to be able to sustain payment of the interest in the months and years ahead, never mind paying down successfully the £300 billion in foreign debt it owes. What is happening now between the ECB, the EU and the IMF is just a game of “let’s pretend” that is not fooling any adult anywhere.


Moreover, Jason Manolopoulos, who has a book out, published by Anthem Press, entitled Greece’s Odious Debt, points out that ordinary people in Greece feel very strongly that they never saw any of the 300 million euros which make up the debt millstone around Greece’s neck. “Odious debt” is debt that a country’s kleptocracy is able to run up by dint of its control of the nation state, and which simply goes to line its own private bank accounts. Since that is not money that the public benefit from or see, the international judgement tends to be that it would be unfair, following a change of government and a clearing out of the kleptocrats, to burden the people with that debt. Ethiopia successfully argued to have part of its public debt cancelled on precisely these grounds. Manolopoulos appears to be suggesting that Greece, post a default, might be able to get some of its debt waived on the same grounds. (What happens to Greek bond holders in that instance becomes an interesting question…)

Greek society, Manolopolous argues, is very different from that in the rest of Europe, with the Greek ruling class drawn from a set of families who constitute something very close to a closed oligopoly.

“It helps to recognize that Greece is very different from other Western European societies. There are, in fact, more similarities to states run by political oligarchies than anyone in the EU hierarchy would like to admit. Shocking examples of kleptocracy by the political elite certainly form part of the explanation for the ferocity of the reaction we are now seeing on the streets of Athens…”

Up to 1974 Greece was either a colony or a dictatorship, he points out, and democracy is, to put it kindly, at a somewhat earlier stage in its life cycle than it is elsewhere in Europe. The Greek public sector “has a long history of giving favours to family or other interest groups,” he says. Cronyism, restrictive practices, bureaucracy and corruption abound. Taking this dysfunctional state into the EU as a fully fledged member without forcing far reaching reform did Greece no favours. In his words:

“… joining the EU and the single currency, and gaining access to huge inflows of global capital actually exacerbated these unhealthy dynamics, rather than bolster Greek democracy.”

Small wonder then that ready access to cheap money created an opportunity for mismanagement on a grand scale. Retrofitting proper processes and modern democratic reforms on Greece at a time when life is getting all but unbearable for ordinary working people was always going to be too huge a task for any Greek government, though George Papandreaou’s government is doing its utmost to make a reasonable fist of the job.

However, those who believe, as Whittam-Smith does, that Greece should end it now, without further ado, have some obligation to try to think through what a default would mean to Greece, to the future of the Eurozone and to the European and global economy. I’ll pick that up in Part Two.

Further reading on Greek default, the eurozone and developed economies:


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