It didn’t get much notice, but this small news item caught my eye: on Thursday, the rather bloodless sounding International Swaps and Derivatives Association’s Determinations Committee met to decide whether Greece had actually defaulted or not. They judged that Greece hadn’t, because although private bond holders had taken a loss of 53.5% on the face value of Greek debt, theoretically this adjustment was “voluntary”. This meant that a default “event” hadn’t been triggered and that Credit Default Swaps contracts were not payable.
Breathe a sigh of relief. Had the trigger been pulled, it is likely that there would have been yet another financial panic: the companies which had issued the CDSes would have found themselves suddenly caught short. Worries about Portugal, Ireland, Spain and Italy finding themselves in a similar position would have spread the fright. Perhaps this would have obliterated recent gains on the stock market and torn the flimsy gauze of economic confidence asunder. The “event”, however, didn’t happen, and we can all go back to sleep. The economy is bumping along the bottom: it’s not so bad that we’re rioting in the streets, but it’s not so good that Harry Enfield is going to revive “Loadsamoney”. It’s rubbish, but manageable. Go back to sleep and dream of a better tomorrow.
The problem is that nothing has been solved: all the remedies applied so far are like taking paracetemol to treat typhoid fever: the temperature may be brought down by a few degrees for a time, but an improvement in the symptoms doesn’t mean a cure is imminent. Meanwhile Greece is locked in a downward spiral, which could lead to anarchy or revolution.
Any analysis of the Greek situation must begin with a bit of honesty, as there is no freedom without the truth: Greece should never have taken up the Euro. It simply wasn’t equipped for this step. According to the Heritage Foundation, Greece ranks behind Nigeria, Mali and Benin in terms of economic liberty. It must be accepted at the outset that the Heritage Foundation is a right-wing think tank: however, this low estimate apparently is only partially due to do with social protection, as notoriously “socialist” Sweden, Germany, France and Norway all have much higher ratings. Additionally, Transparency International, a non-partisan group dedicated to rooting out official corruption, gave Greece a score of 3.4: this puts it behind Romania, Gambia and Lesotho. Essentially, membership of the Euro essentially bestowed Germany’s credit rating and monetary system on an economy which was in no position to handle it. Greek politicians spent borrowed money on fripperies such as the 2004 Athens Olympics and on themselves. The loans were not used to modernise the Greek economy nor provide any sort of resilience should the ceiling come crashing in.
However, if Greece was irresponsible in wanting to join the Euro, the other Eurozone members are just as culpable for allowing them in. There may have been an element of cynicism in this: because of continuing tensions with Turkey, Greece spends 3.2% of GDP (according to 2010 figures) on defence, much higher than the European average, and a good portion of this expenditure pays for German and French arms. Furthermore, Goldman Sachs is also to blame: they actively helped Greece fiddle their figures. As a result of the foolishness of all parties involved, we are now faced with a revolving crisis, in which realisation dawns that Greece can’t pay back what they owe, Germany demands more austerity, the Greek Parliament then argues, threatens, blusters. Germany and Brussels argue, threaten and bluster back. The Greeks capitulate. More cuts are made, more people become unemployed. Athens burns. Smoke rises from charred remains of police cars and shattered shops, obscuring the view of the Acropolis. Things just keep getting worse. I recall viewing a television programme which showed a Greek ship engineer cycling to work amidst shut shops, dirty streets and the rusting hulks of old, unfinished vessels: he was going to work, but he stated he was unlikely to be paid. More generically, Greek homelessness has soared by 25% since 2009. Misery is heaped upon misery. Then the cycle repeats, the driving forces pushing ever downward, suffocating the Greek nation.
To put it in perspective, imagine your standard of living declining as dramatically as Greece’s GDP: in 2010, their economy shrank by 3.5% In 2011, the decline was 6.8%. The prediction for 2012 is a decline of 4.4%. While each of these numbers in and of themselves may sound manageable, cumulatively, they represent a disaster. Furthermore, unemployment is rocketing out of control: as of the 9th of February, it was measured at 20.9%. Youth unemployment in Greece is worse: as of August 2011, it was in excess of 40%. Yet no one has the courage to find a means by which the vicious circle can be broken: Germany, through its affiliates in Brussels, keeps on dispensing the same astringents and purgatives. Greece’s political class protests but then capitulates. To the wider world, the voice of the Greek people, to quote T.S. Eliot, is “dying with a dying fall”: it is not being heard. Because the rest of Europe, if not indeed the rest of the world and the media, is perhaps bored of hearing their cries, the echoes resonate less each time. They are slowly fading into silence.
However, we should be warned: people who are pushed to breaking point can indeed break. An election is due in April. According to recent opinion polls, parties of the Far Left are poised to do particularly well: some polls indicate Greece’s unreconstructed Communists gaining as much as 14% of the vote. More alarmingly, the neo-Nazi Golden Dawn group is within shouting distance of the 3% required to enter Parliament for the first time. None of these parties have been signatories to the bailout agreements: indications are that they would repudiate them upon taking office. So, rather than having taken a courageous decision to write off Greek debt and undo the mistake of Greek membership of the Euro, the politicians may have forced a unilateral default and opened the door for extremism and violence. Contagion can work in this manner as well: people who are fed up with austerity may look upon the Greek example and realise an alternative is on offer, even if it is a brutal and pointless means of escape. The voices dying with a dying fall will have turned into a bloodcurdling scream heard throughout the world.
It is tempting to say that this is inevitable, but few things are completely pre-ordained. However, the chances are that as we slumber, the hunger which rumbles in Greek stomachs will lead to a terrible consequence. I am not a politician, nor a think tank, nor someone who works in Brussels or Washington or Whitehall, yet this is obvious to me. Better, smarter people than I know all this and probably more (and worse): the question is, why aren’t they doing anything about it?