A Greek tragedy revisited: The slaying of sovereignty and democracy

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Truth is as a rare wine. More talk about than taste it on their lips.

Western democracy was born in ancient Greece. There is where it also first died. It seems many among the rich and powerful of that time did not cotton to the democratic notion although that form of society had enabled them to become wealthy. They concluded that their accumulation of money gave them a greater stake in society than that of the common man. They came to use their money and influence to subvert democracy, steadily turning it into a plutocracy, a dictatorship of money where possession of currency would matter more than possession of merit. This was a tragedy indeed. But it was more than a Greek one. It is universal and not banished to olden times. This tendency respects no time barriers. It lives with us today. It is interwoven in human history because it represents the darker strand in the fabric of human nature.

Within the seeds of freedom democracy plants lay the spores of weeds that seek to choke that very freedom. Those who prosper greatly come to see democracy as a shackle chaining them to lesser humans through false equality. They think their greater riches bequeath to them greater wisdom in all things.  They use the money gained through democracy to buy democracy then eagerly bury what they bought. This is how democracy lost its first life in Greece. Due to similar forces, modern Grecian democracy is in danger of being brought underfoot once again.

This time the ravaging comes not from within but from external forces. Greece now suffers a brutal yet subtle invasion. It is an invasion of money into a nation made supine by economic depression and looming bankruptcy. The invaders are European Union bankers and technocrats directed by the government in Berlin. German Chancellor Merkel is set to do what Hitler dared but did not accomplish. She may well succeed in bring an entire nation to heel.  By imposing her will on this smaller, weaker nation she will also intimidate other weaker, smaller Eurozone nations to hew her path.  What Hitler could not do with rifle, jackboot and swastika, Merkel may do with pants suit, loafers and an accountant’s ledger.

Money is the ultimate weapon for it can purchase almost any mortal or material thing, even the soul of man or of a nation. But what can purchase money except more of it?

This past week, the newly elected Syriza government has engaged in futile negotiations with the EU to restructure the “debt bailout” program for Greece. The talks have been deadlocked. The Greeks want some form of debt reduction added to the program. The program as now structured is not a bailout for Greece. It is a bailout for select German and French banks holding Greek public and private-sector debt. It alleviates the risk to these favored banks of getting wet due to their improvident lending by literally having them stand atop Greece. While the banks remain dry, Greece is swallowed and drowned by the tide of unbearable debt. For the privilege of keeping the foreign banks sound and dry, the Grecian economy will be condemned to economic recession if not depression for as far as the eye can see.

Despite the dire economy conditions of the Grecian populace, the EU presently will not budge. The stern austerity deal agreed to by the former conservative government in Athens must be honored, says Brussels. Brussels holds to the merciless stance because Berlin instructs it to do so. The bottom line is brutal. All the talk of pan-European integration and harmony that transcends national boundaries has been claptrap.  When asked to select between maximizing the profits of a few large German banks or diminishing the misery of an entire nation and millions of innocent, hard-working Greeks who had no hand in the errant financial dealings, Chancellor Merkel swiftly made her choice: She told mercy and pan-European brotherhood to take a long hike into Hell’s shadows. She picked her banks over the Greek people.

The deadline for decision is February 28. While Merkel may soften a bit around the edges, she clearly plans to impose the brunt of the extant plan on the new government in Athens. It is Merkel versus the Greek people. Because she controls the money, she will likely win this confrontation.

During the 2008-2009 financial crisis, Greece waded into double-barreled trouble. Because yields on Greek government bonds were higher than in most of the Eurozone daring investors and abject speculators invested in these bonds. The Greek government at the time borrowed too much. It was the time of cheap and abundant money globally. A similar excessive leveraging occurred in the private sector. When the global financial collapse came, the Greek economy was overly indebted and in no shape to withstand what would come next. Banks and investors called their loans. Greece had not the money to pay.

If the nation had maintained its own currency, it could have printed more money to repay. This would have had its costs. It would have caused inflation and made imports dearer. However, it would have also made Greek industry more price competitive while insulating domestic employment levels from the freefall they would experience.

This monetary sovereignty would also have allowed Greece better leverage in negotiating with its creditors. It would have negotiated directly with the private banks themselves and not having to go through the EU or other, more powerful governments with interests adverse to Greece’s. The Greeks made a fateful mistake by joining the Eurozone. It relinquished its monetary sovereignty to Brussels which takes its marching orders from Berlin. The membership also opened its borders without being able to impose capital or import controls to the flood of German manufactured goods and financial instruments. Now Greeks were being asked to pay for the debt accrued if not in blood then by mortgaging the soul and future of the nation.

With Greece prostrated by heavy debt, the EU and IMF invaded to perform their neo-classical economic handiwork. The tragedy begins in earnest, developing a cascading momentum the discerning observer soon recognizes will lead to one place: utter calamity. The EU forces the debt-ridden Greek government to assume Greek private-sector debt. This was done to obligate the government to make German and French banks whole for the risky loan the banks had made to individuals. When it comes to their financial institutions, the German and French governments decided the vagaries of the free market were inapplicable. They imposed a transfer of limited Greek public funds to satisfy these purely private-sector obligations. This foreign imposition of corporate socialism and favoritism for non-Greek creditors would add another layer of debt to a government suffocating under the weight of the public debt it had contracted.

The EU and IMF then devised a plan to loan Greek money to pay these banks. The loan would be conditioned on Greece implementing a severe austerity program. These conservative economists claimed that cutting the government budget would generate more economic activity and growth. They never explained the mechanics of how this would work.  They merrily said the market would take care of everything as if by magic.  They called their happy elixir “fiscal consolidation.” They imposed austerity and then waited for the Greek economy to expand as their textbooks said it would whenever government deficit spending is reduced. The opposite happened.

Austerity turned a serious financial problem into wholesale economic disaster. The past six years plunged Greece into a downturn comparable to the Great Depression of the 1930s in terms of severity and duration. Making a mockery of conservative economics, GDP has been clipped by 25 percent. Unemployment multiplied to roughly 30 percent. By cutting government revenues, austerity was intended to lower the debt/GDP ratio that hovered over 120 percent at austerity’s inception. Today, that ratio is over 173 percent.

Austerity has aggravated not fixed the debt crisis. By lessening government expenditure, austerity contracted the overall economy because it removed the buttress government spending provided the private sector. A shrinking private sector pays less tax; diminished revenues inhibit government’s ability to service the debt. This is worse than a vicious economic cycle. It is terrible enchainment, a prison from which the only release is to pardon a significant portion of the debt owed. In other words, Greece needs debt relief or it will suffer depression the rest of the decade and perhaps longer. (Its GDP growth rate the last quarter of 2014 was -0.2 percent.)

Joining the Eurozone was a terrible bungle for Greece. The nation forfeited its monetary sovereignty to a regional institution and the powerful nations controlling that institution. Because of this forfeiture, Greece must beg the EU for money to pay its debts. He who holds the money is known as the master. He who needs money held by other is known as the slave. The Eurozone was intended to spread freedom and economic prosperity among its members. Sadly, it was not constructed in a way so that it would realize this benign intent. It has gone the opposite way. The Eurozone has opened the door to a financial imperialism in Europe that historically has been reserved for Western manhandling of former colonies.

What Greece has suffered is a compound lesson to all developing nations.  First, never, ever relinquish your currency sovereignty, especially to a financial arrangement vulnerable to manipulation by a stronger economy.  The short-term gains will be quickly erased when crisis comes; in the long term, crisis always comes. When it does, the stronger economy will squeeze the weaker.  Resolution of the crisis will be conducted in a way that increases the influence and power of the rich over the poor. Second, if anyone tries to sell you a bottle of austerity elixir, return it to the mountebank vendor and demand your refund. By all accounts, austerity is as sure a path to poverty as poverty itself. Those who mistake these lessons as false alarms will discover that this economic genre of the Greek tragedy is not limited to Greece alone.