Zach Zill

Welcome to the Satan sandwich, er, recovery

In Uncategorized on August 2, 2011 at 4:00 pm

“Welcome to the recovery.”

–Treasury Secretary Timothy Geithner, August 2, 2010

As the ship of the US economy sinks back into the dark, choppy sea of recession, the happy-think band has run out of tunes to play.  They made a pretty good run of it, but after more than a year of spinning lighthearted ditties out of a funeral dirge, they are packing up their instruments and waiting for the icy water to close in around them.  With the recent slew of economic bad news, most commentators and economists have stopped playing make-believe and are starting to admit that the US economy is flirting dangerously with its second recession in three years.

Meanwhile, Tim Geithner, like the captain who stays alone at the helm, hopelessly spinning the wheel of his doomed vessel, continues insisting that the recovery is on track.  Don’t expect any contrition or admission of failure on Geithner’s part.  In his disdainfully-titled and shamefully-disconnected New York Times op-ed from exactly one year ago, Geithner performed the economic equivalent of likening radio static to the 1812 Overture, while failing to acknowledge that life continues to get worse for most Americans.

If Geithner was given a chance to reflect on his comments today, you can almost imagine his sniveling response, simultaneously arrogant and inadequate: “After carefully consulting my colleagues, I decided that the situation would have been worse had I not written that op-ed.”

Unlike the fabled captain who goes down with the sinking ship, and very much like his buddies in the world of high finance, Geithner will never personally face the consequences of his own devastating inadequacy and his fealty to orthodoxy.  He will soon bolt his high-pressure job in the Obama administration and likely end up back in the finance industry, sailing the world in gold-plated yachts and attending parties where he can freely abuse dwarf people.  Perhaps he will be lucky enough to help invent the next absurd new status symbol for today’s ultra-rich.

Geithner is not unique in any of this.  His role easily could have been filled (and will be filled after his departure) by countless other men (yes, almost always men), whose training, worldview, and lack of creativity and critical thinking facilities make them a perfect fit for a system in constant need of vacuous social climbers willing to inflict pain on others while simultaneously enriching themselves and the elite they represent.  Like a bomb-slinging Tom Brady in his prime, Geithner’s performance of “God’s work,” in the words of banker Lloyd Blankfein, only allows him to dish out the barbs of economic pain, never to actually receive them himself.

So with the happy-think band now silent and Geithner nearly on his way out, let’s look reality in the face.  It is not a pretty picture.  By any number of measures, the economy has lost its weak grip on recovery and is in for either a period of stagnation or a double-dip recession.  As we head into the second half of this year, almost all the major indicators of economic health look terrible: factory orders, the housing market, consumer spending, unemployment, and more.  Recent GDP numbers that were just released show that the original recession of 2008-2009 was much deeper than originally thought and that growth in the first half of this year was almost zero.

Meanwhile, Europe is staggering towards economic abyss.  Even the Chinese economy, the only engine of growth in the world economy in recent years, has been slowing and cannot provide the sort of boost needed to restore growth in any meaningful way.

And now we are left chomping on, in the eloquent words of US Rep. Emanuel Cleaver, a “Satan sandwich.”  The US government has passed a debt deal that will drive a stake into the heart of what little remains of the US social safety net.  As this deal goes into effect, the country will never be the same.  We are on the verge of an epochal shift, a wholesale gutting of the services our society provides to its poorest and most vulnerable.  If you thought we were experiencing a social crisis before this deal passed, things are going to get much worse.

As many commentators have pointed out, the short term effect of this deal will almost certainly depress the economy further.  It will also exacerbate the US wealth disparity, which has grown to banana republic-like proportions.  The recent report on this is worth describing: it shows the wealth gap between white households and black and latino households widening to record levels, at the same time as the wealth gap within racial groups widened.  In other words, the economic impact of racism is sharpening, and the rich–no matter what the color of their skin–just keep getting richer.

In the midst of this dystopic economic landscape, capitalism gropes in the dark towards the only solution it knows for economic crises: destruction of excess value that is clogging the economy.  Reports show that banks are now starting to demolish foreclosed homes they have on their books that are simply too much trouble for them to sell.  This is something that I predicted would happen a couple years ago, because it is simply the logical move for a capitalist economy suffering from a glut of housing stock.  But it is still unsettles me to see it actually happen.

And so here we have an economic system that’s proclaimed as the “most efficient social system for the production and distribution of essential goods” destroying houses while homelessness increases.  I have learned that no matter how twisted it gets, this way of doing things will still have its defenders–those who either can’t or won’t acknowledge the possibility of replacing this sick system with something better.  It’s Tim Geithner on a grand scale: “Welcome to Capitalism.”

What happens if Greece defaults?

In Uncategorized on July 11, 2011 at 10:33 am

What happens if Greece defaults?

A look at the consequences of Greece being unable to pay its debts.

July 11, 2011

AS ROCKS fly and tear gas wafts through the streets of Athens, Greece’s Prime Minister George Papandreou has warned of a coming crackdown on protesters and striking workers. Meanwhile, a new bailout for the banks is being prepared in the halls of power in Europe.

Papandreou was able to secure breathing room for the Greek government with another round of emergency loans that saved it from the immediate prospect of default–the state failing to pay back some or all of its debts. The condition for the latest “rescue” is another round of austerity measures imposed on workers who have already seen their living standards drastically reduced at the command of the European Union (EU) and International Monetary Fund (IMF).

Yet even at this cost, Greece’s sovereign debt crisis continues to pose a major threat to the world financial system.

The Greek government’s debt to other countries is almost $500 billion–or 1.5 times the annual economic output of the entire country. With the economy mired in a deep recession that has only been made worse by austerity, and with the government unable to cover its basic expenses without assistance, a Greek default now seems almost inevitable.

As the Washington Post reported, “The emergency loans expected to be made available to Greece will pay its bills for perhaps only two more months…It will be back to the brink by the end of summer.”

Banking executives from Europe and the U.S., along with European heads of state and officials from the “troika” of the EU, European Central Bank and IMF, have been holding weeks of intense meetings–chiefly to find a way to save private banks from taking a big hit as a result of this intensifying crisis.

The latest bailout is being disguised as a long-term loan package to “help Greece.” Advocates for the deal insist that with the help of this $160 billion package, the Greek economy will recover, allowing the government to fix the country’s finances and repay its debts.

But the reality is that the proposed new package, accompanied by usurious interest rates and even further austerity measures, will worsen Greece’s economic position and make it even more difficult for the country to pay back its debts–just as Greece’s last austerity package did some 18 months ago.

Put simply, Greece’s state finances are badly broken, and another intervention by the troika will only worsen the overall economy, while temporarily putting off a default.

But admitting as much today would force the European and world banking systems to confront another potentially disastrous international financial crisis even as they continue to deal with fallout from the last one. The negotiations over Greece are therefore aimed at buying time and ensuring that the inevitable financial losses will be shouldered mostly by taxpayers, rather than private banks.

As the Economist has already acknowledged, “[T]he plan seems to do too little to help Greece and too much to help the banks.”

Socialist economist Costas Lapavitsas made a similar point in the Guardian:

What, then, is the point of the fresh bailout ? The answer is rescuing international bondholders and buying time for banks…In 2015, Greece will be bankrupt, but its debt will be held overwhelmingly by public lenders: the EU, ECB and IMF. When default comes, the banks will be out of it, and Europe’s taxpayers will bear the burden.

As Dutch Finance Minister Jan Kees de Jager concisely summarized it, the aim in Greece is about “converting private debt into public debt.”

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BEHIND THE convoluted and perplexing details about the financial mess in Greece lies a simple question: Who will suffer most when Greece eventually does default?

Much attention has been focused on the agreement reached with French and German banks to voluntarily roll over their current holdings of Greek debt into new, longer-term bonds. This is seen as a crucial first step for Greece to secure a new deal for long-term financing of its national debt.

But the detail that usually goes unmentioned is that the troika offered the banks a much better deal than they would have received in the case of an immediate Greek default. Under the troika’s plan, European taxpayers from economically stronger nations like Germany will be put on the hook for tens of billions of euros. Meanwhile, savage austerity measures will devastate workers and the poor in Greece, and privatization of state-owned companies and facilities will further open the economy to looting by foreign investors.

So is the option of an immediate default really unthinkable, as bankers and financial officials claim? What would happen if Greece defaulted today?

An immediate default undoubtedly would set off a serious crisis. The entire Greek banking system would go bankrupt, both because it has lots of debt of the Greek government on its books, and also because the European Central Bank would likely cut it off from further funding at that point.

With Greek banks insolvent and the government in default, private banks in France and Germany would stand to lose tens of billions of dollars on their investments in Greek debt. This, in turn, could cause some banks to fail–and would likely would trigger a series of payouts to investors who purchased so-called credit default swaps on Greek debt. These swaps are essentially insurance policies held by banks and other investors, which pay off in the event of defaults.

Because credit default swaps are spread throughout the world banking system, their activation would likely cause further bank failures, much like the ones that took place in the fall of 2008 with the financial meltdown that started on Wall Street. Three years later, many major financial institutions still haven’t set aside enough cash to cover such payouts.

Furthermore, a Greek default would almost certainly undermine the financial stability of other highly indebted European governments, such as Portugal, Ireland, Spain and Italy. That’s because if bailouts prove insufficient to prevent a default by Greece, investors will conclude that these other governments won’t be able to meet their own obligations either.

In short, a Greek default would likely trigger a new global financial meltdown. Commentators have begun referring to the scenario as a “second Lehman”–in reference to the collapse of the Lehman Brothers investment bank, the event at the heart of the financial panic of late 2008.

Even countries like the U.S. that don’t have substantial direct exposure to Greek debt would still be caught up in the ensuing financial whirlwind resulting from a default. That’s why Barack Obama has said that a Greek default would be “disastrous.”

It’s even possible that this scenario could play out in the near term. The current proposal for a planned restructuring of Greece’s debt–in which lenders accept delayed repayments or partially forgive debts–could still scuttled. This is because financial ratings agencies like Moody’s have said they would still consider such a restructuring to be a “selective default.” Such a decision would mean calling in the credit default swaps on Greek debt, creating a knock-on effect.

The crisis is already spreading in Europe. Moody’s unexpectedly downgraded Portuguese government debt to junk status, sending new shivers through the continent’s banking system. Major financial institutions have begun radically restricting lending, not just to Greek institutions, but to all eurozone banks. This is a sign that the Greek contagion has already spread.

As Britain’s Telegraph reported:

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bailouts of many more.

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PREDICTABLY, THE troika has described the harsh austerity measures demanded as a condition for the bailout agreement as the only possible solution to the crisis.

But the truth is that austerity measures are absolutely not the only way to restore that country’s finances–they are simply the best way of making the working class pay. As Mark Weisbrot, co-director of the Center for Economic and Policy Research, pointed out:

It is amazing how they report as though there’s no choice. There is always a choice…They could default now, and they could refuse to accept these conditions. They may be better off for that, especially if the result of what is going to play out is years of recession and high unemployment.

As the fight against austerity grows and matures in Greece, new solutions–democratic and pro-working class ones–are rising up from the streets of Athens and the round-the-clock occupation of Syntagma Square outside the parliament building.

One possibility is this: With an immediate default, the Greek government could dictate how much of its loans it would pay back and when. Doing this would almost certainly mean Greece exiting the European common currency of the euro. But coupled with a nationalization of the banking sector and a major tax increase on the rich and corporations to raise state revenue, it would be a way of addressing the crisis without making workers pay for the losses of the banking sector.

Not surprisingly, this possibility is considered beyond the realm of acceptable discussion in Greek or European politics. For the bankers, bureaucrats and ruling parties of Europe, there’s only one course of action: make the workers pay. Whether the governments are run by conservatives, as in Britain, or by social democrats, as in Greece or Spain, austerity is the common policy.

But despite this consensus of Europe’s rulers, resistance to the cutbacks continues across the continent–from the big public-sector strike in Britain in June, to the plaza occupations in Spain, to the general strikes and mass protests in Greece.

Greek workers are right to resist efforts to make them pay for a crisis caused by bankers, business executives and politicians. Defaulting on debts to capitalists abroad–and confronting Greek capitalists at home–is the best way to defend the interests of the Greek working class.

Welcome back: two posts on Greece

In Uncategorized on July 11, 2011 at 10:28 am

Why hello there!  It’s been a while since I’ve used this space–I’ve been busy with other projects.  In addition to speaking at the recent Socialism 2011 conference along with Glenn Greenwald and others, I’ve had a couple pieces published elsewhere recently, which I will now re-post here for your enjoyment.

Both of today’s posts deal with the Greek debt crisis and resistance to the austerity measures being imposed in that country.  Much of my recent thinking/writing has focused on the issue of the new resistance growing up in opposition to austerity, cuts, and unemployment–especially as they relate to youth issues.  So expect more upcoming posts on education cuts, youth unemployment, and youth-led resistance movements–from the US to Greece to the Arab world.

As always, I appreciate your feedback and sharing of my writing.


Will Greece’s revolt topple the government?

The backdrop to the uprising against austerity shaking Greece.

June 20, 2011

GREEK SOCIETY has exploded into protest against austerity measures, threatening to bring down the government of Prime Minister George Papandreou and his center-left PASOK party. Meanwhile, the country staggers to the brink of default and economic collapse.

Three weeks of mass protests, public square occupations and spreading strikes culminated June 15 in a 24-hour general strike that brought the country to a standstill. Tens of thousands of people poured into the streets in front of the parliament building in Athens’ central Syntagma Square.

Demonstrators, who clashed with riot police armed with clubs and tear gas, continued to mobilize over the weekend, as workers rejected Papandreou’s desperate move late last week to reshuffle his cabinet in the hopes of breaking the paralysis gripping the state.

Papandreou will face a confidence vote this Tuesday, June 21. And the following week, the government is scheduled to debate and vote on another round of devastating cutbacks, justified as the necessary sacrifice to save the country from financial catastrophe if it defaults.

Meanwhile, the anger in the streets is boiling over. Syntagma Square rings with the chants: “We owe nothing, we sell nothing, we pay nothing” and “We’ll stay until they go.”

“We didn’t create the debt, they created the debt,” Lina Pantazi, a 40-year-old public school teacher told the New York Times. Another protester, Antony Vatselas, a 28-year-old mechanical engineer, told Reuters, “We want them out. Obviously these measures are not going to get us out of the crisis.” With tears streaming down his face from the tear gas, he continued: “They want only us to pay for it. And they are doing nothing. I want the debt to be erased. If this doesn’t happen, there is no exit for Greece.”

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THE VAST majority of Greeks reject Papandreou’s attempt to implement austerity measures demanded by the European Union, International Monetary Fund (IMF) and European Central Bank in return for a bailout package negotiated in May 2010 that was worth nearly $160 billion. This “troika” is threatening to withhold further funds for the Greek government unless it accelerates the pace of the cuts.

As a result of the bailout deal, Greece’s population of 11 million is suffering its deepest social crisis in generations. Waves of draconian cuts, including a 20 percent wage cut for public-sector workers, reductions in pensions of up to 55 percent, and an increase in the retirement age have upended social life in Greece and decimated working-class living standards.

The proposal that is due to be voted on next week is a new five-year plan that would consist of a further 20 percent wage cut for government workers, the elimination of 200,000 public-sector jobs, another round of regressive tax increases that hit workers hardest, and an extensive fire sale of state-owned industries and public assets.

In response, the Greek movement against cuts has mushroomed into an angry popular uprising with roots among all sectors of the population. A movement of young people mimicking Spain’s “Indignados” or “Indignants” (“aganaktismenoi” in Greek) has organized weeks of round-the-clock occupations of public squares Syntagma in Athens. Mass rallies at Syntagma each night drew thousands of people.

The labor movement has also escalated its actions. The two main union federations, the public-sector ADEDY and the GSEE federation, have called strikes in workplaces slated for privatization and shut down the country with last week’s general strike, Greece’s third of this year and the 11th since the crisis began.

Now, the strength of the protest movement has created splits within the ruling PASOK party and frozen the austerity proposals in parliament.

Several PASOK members of parliament defected or pledged to vote against the new measures, crippling Papandreou’s government. A sense of fear and paralysis grips the Greek ruling class. Even the conservative opposition party, New Democracy, refuses to support the austerity measures–last week, it rejected Papandreou’s offer to step down and make way for a “national unity” government between PASOK and New Democracy.

Papandreou had to resort to desperate measures. Over the weekend, he appointed his main PASOK rival, Evangelos Venizelos, as finance minister after dismissing George Papaconstantinou, who authored the new austerity plan.

But this reshuffle is unlikely to alter the situation. As Yannis Varoufakis, a professor of economics at the University of Athens, told the BBC, “The whole government is breathing its last breath. This is a transitional government that will be ineffective and will resemble one of the six governments in Argentina during its pre-default era.”

The protest movement has spread into every corner of Greece, from the country’s second-largest city Thessaloniki to towns on remote islands.

The movement has permeated society. On June 16, riot police were called in to confront a group of elderly demonstrators at a home for seniors–they bombarded government spokesperson George Petalotis with chants of “Shame, shame,” and hurled fruit and yogurt at him when he arrived to address a PASOK meeting.

As journalist and author Paul Mason, reporting for the BBC in Athens, wrote: “You walk down Venizelos Avenue–the big business boulevard from Syntagma to Omonia Square–it is ghostly quiet…The street is under the control of the protesters…Every shop is shuttered…There are no ‘bystanders.'”

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HOW DID Greece get to this point? For more than a year, the so-called “sovereign debt” crisis has smoldered away in what’s known as the Eurozone, the European countries united under the euro currency. The debt crisis stemmed directly from the global financial meltdown of 2008, which stretched the finances of the weakest members of the Eurozone, especially the so-called PIIGS–Portugal, Ireland, Italy, Greece and Spain.

These countries, in particular, veered toward insolvency as government debt grew far beyond the target for European Union member countries of 3 percent of gross domestic product. In response, the troika engineered a series of bailouts, starting with Greece in May of last year. Each was contingent on the state accepting harsh spending cuts, reductions in wages and pensions, and accelerated privatization.

According to the mainstream media, austerity is the necessary corrective for a country where workers supposedly enjoyed lavishly high living standards and extravagant social programs, as well as outdated protections for unions–this, the press claimed, was the source of the debt crisis.

But the Greek crisis is certainly not the result of too much money going to workers. When the financial crisis of 2008-09 struck, the Greek government–like other countries around the world, including the U.S.–wrote a blank check to rescue its banking sector, to the tune of at least 28 billion euros.

Before this, the Greek state was starved of revenue by drastic cuts in corporate taxes, which fell from a rate of 45 percent in the 1990s to 20 percent–and only 12 percent for banks. During the last years of the conservative New Democracy government under Kostas Karamanlis, there was widespread non-payment of taxes by major corporations and big capitalists.

The government has also wasted huge sums on frivolous expenditures or useless military equipment. For example, the massive stadiums and arenas built for the 2004 Olympic Games in Greece now sit empty. Greece also purchased a $100 million anti-terrorist monitoring system from a company called C4i–it has never been used.

Then there’s the role of corrupt financial speculators like the U.S. super-bank Goldman Sachs, which advised its hedge fund investors to bet on a Greek default at the same time as it advised the Greek government to go deeper into debt.

The claim that austerity would “modernize” the Greek economy and get it back on track has turned out to be completely wrong. The cuts have worsened the crisis, sending unemployment climbing to 16 percent–31 percent for those under 30 years old–and causing Greece’s GDP to plummet 4.5 percent since a year ago.

The Economist magazine admitted as much in a recent article:

Inherently, there are two conflicting economic tensions in the rescue packages. The first is that the austerity programs needed to cut deficits are killing the growth needed to make debt bearable…The other inherent tension is that the steps needed to improve competitiveness within the euro require prices and wages to be held down, making it even harder to cope with debt.

Despite the bailout, the Greek economy has been tottering on the brink for over a year–it will need another massive bailout to avoid default. Over the weekend, France and Germany–the main financial powers in the EU–reached two highly touted agreements over the nature and timing of the next bailout package. Significantly, private investors were protected from any losses in a potential Greek default.

Yet the key short-term issue remains–the next infusion of funds to the Greek government is due to come in only a few weeks, and it is contingent on the passage of the new austerity measures. Without those funds, the government will run out of money next month and will be forced to delay or cancel its debt repayments.

Even if the austerity proposals pass, the odds are that Greece will eventually default anyway. As George Magnus, senior economic adviser at UBS, said, “I don’t think there is a question over whether Greece is going to default, it is just a question of whether it is an orderly or disorderly one.”

The IMF knows this is the likely outcome. But it, along with European political leaders, with the support of the U.S., are using the crisis as an opportunity to force through massive privatization–not just of industry and assets such as post offices and airports, but also thousands of acres of prime real estate–and a huge transfer of wealth from the Greek working class.

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IN THIS regard, the cuts have largely been successful–and they have caused severe hardship for workers whose living standards have been cut to the bone. To take just one example, last year, the government was forced to open its military hospitals to the public because public hospitals lacked funding needed to maintain adequate levels of staff and supplies.

Only a few voices of ordinary Greeks have come through in the Western media coverage, but they reflect the desperation. One demonstrator quoted in the New York Times, a 63-year-old retired nurse named Angeliki Kolandretsou, described having her pension cut to only $915 a month, at the same time as her 42-year-old son moved back in with her after being unable to find a job for five years.

Corina, a student in Athens, wrote on the BBC website:

We are a country at war. Protesters are fighting not only for their dignity, but for their right to protest…I am a student and my university is about to close because of a lack of funding. Many other universities are in the same position. Some of my friends will not be able to sit their exams. I don’t know what I will do. I would like to study abroad, but I don’t have the money. I just want my country to recover. We don’t have a future here. This country is suffocating its people.

Because of their complicity with the troika, Greece’s two main parties–which have governed since the fall of the military dictatorship in 1974–are totally discredited in the eyes of most workers. PASOK is in a shambles, and New Democracy, while opportunistically rejecting austerity, has no alternative.

In 2008, Papandreou came to power thanks to a landslide victory for PASOK, which was broadly supported by Greece’s ruling establishment. The party with the traditional allegiance of Greece’s working class was expected to be a better salesman for cuts and privatization.

But that allegiance has now dissolved. As Paul Mason described, the PASOK government has not only lost support for austerity, but “is beginning to lose its grip slightly on the actual functions a state should do.”

The social crisis has summoned up the darkest elements of Greek society. Fascist gangs and neo-Nazis have taken to trolling the streets of Athens, targeting immigrants. Last month, fascists attacked a group of immigrant workers, killing one and injuring dozens. Reports from Greece describe the far right as a presence at the mass demonstrations–not to counter the protesters, but instead to try to capitalize on the despair and attract more supporters. Important rallies have been organized to defend immigrants, but it’s clear the threat of the far right will remain as long as the crisis continues.

But the main beneficiary of the explosion of social protest has been the left. Though it remains small compared to the broader movement against austerity and the social discontent, there are promising signs emerging from the mass movement itself.

The Syntagma aganaktismeni have begun a daily routine–modeled the occupations of Madrid’s Plaza del Sol and other Spanish cities, themselves inspired by the Tahrir Square mobilizations during the Egyptian revolution–of holding a popular assembly every night that draws hundreds of speakers and an audience of thousands. Reports from Greek activists also indicate that the aganaktismeni have begun reaching out to the organized working class.

The popular assemblies are shaping demands that fit the mood of rebellion and resistance–above all that Greece should refuse to pay its debts and exit the euro, and that the capitalists should be made to pay for the crisis. There is also an important democratic demand emerging–that European Union officials in Brussels, Paris or Berlin should not be allowed to determine the future of millions in Athens or Thessaloniki.

The Greek movement is growing stronger by the day and now represents the leading edge of Europe’s popular struggles against austerity. Actions in the coming days and weeks will be decisive in shaping what looks to be a long hot summer in Europe.