"A bit frustrating"

I'm going to take a break from blogging about the New Zealand elections for a while and say something brief about the situation developing in Greece and the wider European Union. My knowledge of macroeconomics is limited to an ECON 111 paper taken back in 2007, so don't expect anything too in-depth from me. If you already know the background to what's happening in Greece, or don't really care and just want to get to the good bit, then skip down past the image.

My understanding of what's going on is very very basic. Greece has gotten itself into the situation where it can't afford to pay its bills. It has considerable foreign debt (it owes other countries heaps of money). There are a few things that can happen when a country gets into a situation like this:

At one extreme, it can massively cut government spending, raise taxes, and slowly pay down the debt. At the other extreme, it can declare some sort of sovereign bankruptcy (I don't really know how that works) and not pay back any of the debt. That would result in all the countries who are owed money taking a massive hit as they write off billions of dollars of 'assets' and, if reports are correct, send the world into another recession as bad if not worse than what we saw following the collapse of Lehman Brothers in the United States in 2008.

And then, somewhere in between those two extremes, there are a range of semi-financial, semi-political options that can be adopted. My understanding is that the solution proposed by the European Union (or some related body, I don't know about the details) involves EU member states forgiving a large part of their debts owed by Greece (something like 50% of Greece's foreign debt, I think). In exchange, they demand that Greece submit to a strict austerity programme of cutbacks in public spending and increased taxes. It's a loss-cutting exercise: if they don't do anything, they loose 100% of their assets; but if they do this then they retain a reasonable chance of recovering the 50% that isn't forgiven.

This was all agreed to in principle between the EU member states and George Papandreou, the Greek President, a few days ago. Yesterday Papandreou announced that the agreement would not be ratified without the support of the Greek people through a referendum. Considering that the Greeks are being asked to accept massively reduced government services and higher taxes, it's not hard to predict what the outcome of that will be.

I don't have a clue how world markets work, but I know what red means and this is a screenshot from TV One News last night:

Others can obsess over the impact that this will have on world markets and the international recovery post-2008, but there is something much more interesting going on here. It's a story about political power, and the way that it's shifting.

Thomas Jefferson said, in an age before the dominance of the international financial system, "When the people fear their government, there is tyranny; when the government fears the people, there is liberty."

The world has changed since Jefferson's time. Governments themselves now quake in fear in the face of international credit ratings agencies, foreign currency speculators and offshore capital funds. Governments are at least superficially accountable to the people; these financial institutions are accountable to no one. They fear no one.

What we can see happening in Greece, Europe and the world at the moment is a change in this power dynamic. When the EU members had their meeting with Papendreou and came up with this plan, they did so within a paradigm where the people are silent. While they were in their meeting, behind closed doors in a foreign country, that paradigm started to shift. The people are no longer silent, and they will not roll over.

It is the realisation of this shifting paradigm that has sent shocks into the financial system. Suddenly they have seen that they are not totally unaccountable. Suddenly they are afraid.

The disciples of the neoliberal revolution, desperately clinging to their structures of inequality and power, have consistently tried to claim that the unrest around the world under banners like "Occupy Wall Street" and "We Are The 99%" doesn't really know what it's about. They say it has no clear message; no political foothold; and no real injustice against which to rally. 

Well, this is what it's about. It's about reminding the rulers of the people - their governments - and the rulers of the governments - the international financial system - that the people will not stay silent forever. They will not passively stand aside while those who claim to know better dismantle society around them. They, like me, might not understand the complexities of the markets, but they know that every voice should count. That people count.

The title to this post - "a bit frustrating" - comes from a comment from Ben Bernanke, chairman of the United States Federal Reserve, reported in The Guardian.


Post a Comment