Stock markets around the world reacted with horror this week to the news that Greek Prime Minister George Papandreou has ordered that the terms of a proposed EU rescue package worth €130 billion should be voted on by the Greek people in a national referendum. The Nikkei, the German DAX index, the French CAC-40, and the Dow Jones Industrial index all ended the day down 2% or more. The euro took a pummeling on the foreign exchange markets.
Global leaders involved in the Greek rescue talks expressed shock and disappointment that the Greek government would throw into jeopardy the carefully-constructed rescue plans that required approval from all 17 EU governments. The White House press secretary, speaking on behalf of the President, urged Greece to accept the bailout terms as soon as possible. It was US Treasury Secretary Timothy Geithner who first recommended to the EU leadership that it significantly expand its bailout fund from €440 billion to as much as €2 trillion in order to calm global financial markets.
Now let’s step back a minute and consider how ludicrous this all is. The Greek Prime Minister proposes that the Greek people, who have borne the burden of one austerity package after another each time Greece has approached the EU for help, at long last get to have a say in these discussions. Politicians everywhere express dismay and surprise that any politician, especially one on the receiving end of the bailout talks, would even consider allowing the people to at long last have a vote in these decisions. Financial markets plummet on the news. Since when did democracy become the enemy of good governance in democratic countries?
This little episode tells you everything you want to know about the ongoing global credit crisis, and why the Occupy Wall Street movement has spread from one city to another around the world. The fact is that G-20 leaders to a man and woman fear the people. They do not want them to have any say in the multitude of bailout discussions and decisions that have been breaking out since the credit crisis erupted in 2008. And if they don’t want the voters to vote on any of these decisions, you can bet every single dollar or euro or yen left in your bank account that these same leaders are not telling you the truth about what is in these bailout packages and who benefits from them.
Wall Street knows very well who benefits from these bailout programs. The Greek bailout package to traders around the world is an obvious shell game. The €130 billion will be paid to the Greek government, which will promptly remit the money in the form of interest payments to the German, French and other large banks that hold the bulk of the Greek debt in the market. Not one cent of this money is going to be spent on the needs of the Greek people. In fact, the EU is demanding yet more austerity programs be implemented, cutting the wages of workers, destroying pensions, closing schools, and shutting down hospitals. It is true that the EU is forcing the big banks to write down their investments in Greek government debt by 50%. But austerity for the people is not the same as austerity for the banks. There is no money set aside to mitigate the social pain of yet more austerity imposed on the Greek economy, but that special fund used to bail out the banks directly by the EU is going to be increased from €440 billion to €1 trillion. This is not quite Timothy Geithner’s €2 trillion, but it is large enough to ensure no bank suffers any inconvenience from the Greek bailout program.
Traders around the world have understood all along that it is the bankers, and the global financial and corporate elite, who are dictating these bailout terms. Stock markets everywhere have risen to their pre-2008 highs, and some of them have set all-time highs, because the taxpayer money spent on bailouts is devoted entirely to propping up the global financial system. One might suppose that the politicians who have participated in this process are doing so from an altruistic look at the distant future. “If we allow one country or one large bank to go down, all of the financial system goes down as well, causing untold misery for billions of people who will lose their life savings.” – so the thinking goes.
A more sinister interpretation would be that politicians everywhere are dependent on the financial industry for their largest campaign contributions, and they dare not deny the banks what they are demanding.
The Greek people at this stage might very well be saying to themselves, “What’s the difference? I’ve lost my job, my pension, my medical care, and my public transportation. My savings will soon be gone anyway. How much worse is it going to be for me if the big financial banks disappear? I’ve already got what little money I have left out of the system anyway.”
One thing that already is happening with the Greek people is that they have been so down-trodden by their politicians, and are so distrustful of them, that quite a number of political commentators in Greece have suggested that Papandreou’s proposal is a Trojan horse. People sense a trap, because so much depends on the wording of the referendum, which is not revealed yet. It is very different if the people are asked whether they wish to accept yet another austerity program, versus whether they wish to accept another bailout program. It is even more likely that Papandreou will restrict the referendum to a simple question: “Do you wish for Greece to remain in the euro?” The euro is very popular in Greece – it is a palpable connection between Greeks and the rest of Europe. No one wants to leave the euro, and no one wants to be given a choice that implies rejecting a bailout package will automatically require abandonment of the euro.
There are in point of fact some sound economic and policy arguments why Greece should abandon the euro. A reintroduced drachma could be significantly devalued, giving Greece the chance to rebuild its export prowess and attract tourists. This type of program worked well for Argentina ten years ago, and more recently for Iceland. Both countries suffered grievously while going through the initial stages of the devaluation and economic collapse, but the pain it turns out was probably not much worse than what Greece is experiencing already through its ever-increasing austerity diet.
Abandoning the euro, however, would be anathema to politicians in Paris and Berlin who are desperately clinging to this one vestige of a unified Europe. As mentioned, it would also be unpopular with the Greek voters, who like the thought of traveling throughout Europe as equals to everyone else. So a referendum on the euro may be just the “trick” Papandreou needs to square the circle, and obtain political cover for new austerity. It could very well be the trap that some voters fear is being laid for them.
Or – the voters could call the bluff of the politicians. “Yes, let’s go ahead and abandon the euro. We don’t want any more bailout money. We agree to default on our debt. We understand there are going to be some very hard times ahead for Greece. We will be much poorer, barely able to afford the necessities of life. We’ll have to band together as neighbors and as a nation just to survive. But we’ll make it through this. And at the end, we’ll be free – free of the banks, free of the politicians, free of the corporations. We’ll be able to create our own destiny.”
The trap that is being set – if that is indeed Papandreou’s plan – may in the end ensnare Papandreou himself. This is always a problem with democracy. The people may actually, in their collective wisdom, be able to figure out what is in their best interest, and they may be willing to jettison a system that has shown itself to work against their interest time and time again.
Paris and Berlin, and every financial market around the world, have every right to be worried about letting the people in on what has been happening. If Occupy Wall Street is suggesting anything, it is that large numbers of people – maybe a majority – have figured out that what has been happening politically and financially is inimical to the people’s interest. The Greek referendum may be the first bit of proof that the people have had enough of the banks, politicians, and corporations, and are ready for significant reform in all these areas.