When Greek finance minister Evangelos Venizelos met Timothy Geithner in Washington yesterday, did they commiserate about the depredations of the rating agencies which have wreaked havoc on European economies over the last months, and which are now attempting to dictate terms in Washington? Standard and Poor’s has threatened to withdraw the United States’ AAA rating unless a timely agreement is reached on raising the debt ceiling—and unless legislators agree on a $4 trillion package of deficit reduction measures. Greece has suffered repeated assaults from the three unelected Fates, which have now pushed interest payments on the country’s two-year bonds up to 27.7 percent. On Monday Moody’s cut Greece’s rating by three notches to Ca—implicit default—further dampening the squib of euphoria that greeted last week’s European summit agreement on a new bailout for Greece, along with measures meant to contain the crisis and stabilize the Eurozone.
Not that the agreement was about to save the world, though some of its terms are welcome. It does ease the pressure on Greece, Ireland and Portugal by extending the term of EU loans from four to thirty years and reducing the interest rate to 3.5 percent; it also provides for a voluntary “haircut” of 21 percent (too little and too late) for Greece’s private creditors—a victory for German Chancellor Angela Merkel, who didn’t want to hand the whole burden to German taxpayers. (An arcane mechanism is supposed to contain the rating agencies’ threat to consider such a haircut a technical default, triggering debt insurance payments across the world; it is still not clear how far this has been successful.) The agreement is also a step towards greater European fiscal union—read redistribution—with provision for the new European Financial Stability Fund to buy up sovereign debt and recapitalize the banks not only of failing Eurozone countries but of those deemed at future risk. Of course, no decision has yet been reached on how the EFSF itself is to be financed; details at eleven, or more likely in September when the Bundestag gets back from its vacation, hopefully in a more charitable frame of mind.
But the EU’s attempt, once again, to ringfence Greece as if the European debt crisis was caused by Greece alone looks doomed and dangerous: Paul Krugman responded to it with a short blog titled “1937! 1937! 1937!” After emphasizing that the haircut for private lenders applies only to Greece’s creditors, the document goes on to whistle loudly in the dark, “All other euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms.” As any parent knows, making concessions to one child while strictly forbidding the same concessions to the others is a fatal sign of weakness; and as the Greek economist Yiannis Varoufakis points out, expecting Portugal and Ireland (and Italy and Spain) to go on making pledges they can’t meet is an open invitation to speculators (and the rating agencies that serve them) to push up bond spreads, hedge their bets and keep the whole destructive cycle going.
This is why the popular game of Blame the Greeks, played in the Western media since the crisis began, is so irresponsible: it perpetuates the myth that the whole European financial crisis with its global repercussions has been caused by one little country and its pathetic people who won’t pay their taxes and who expect to retire at 55, and that if those people can be made to stop whining and take their medicine, everything will be all right. The wizards at Moody’s know this isn’t true; the Greeks know this isn’t true; and, judging by the defensive tone of the summit agreement, European leaders also know this isn’t true—only they can’t admit it, because that would mean acknowledging that they have no idea how to get out of this mess, caught as they are between the financiers threatening Armaggedon on the one side and their own voters threatening to unelect them on the other.
This is not to say that Greece’s economy and political culture are not in need of root-and-branch reform, or that the country has not been living beyond its means for decades; they are, and it has. But to rehearse Greece’s ills yet again (as a piece on this website did last week) without acknowledging the wider context of an unbalanced European economy and a deregulated, overpowerful financial system is to obscure the systemic problems, which will keep erupting until Europe decides what it wants to be when it grows up and the markets are restrained from dictating government policy. Inside and outside Greece, there’s a misleading argument between those who think the roots of the problem are domestic and those who think they’re international and systemic; both are right, and both aspects need to be addressed.
There’s often a political difference, though, between those in either camp. Those on the domestic causes side also tend to dismiss the Greek protests against austerity measures imposed by the EU and IMF as self-interested resistance to necessary reforms—a canard levelled at popular movements for centuries. But while many Greeks voted for George Papandreou’s government precisely because they were sick of politics as usual and wanted an end to corruption and clientelism, none of them voted for the extreme wage cuts, pension cuts and tax rises that are now pushing them into poverty, or for the forced sell-off of public assets and public lands that will lay the country open to further exploitation and environmental damage. Reform was bound to be difficult and painful; but it need not have been devastating.
The problem of political agency is fundamental here. As John Lanchester pointed out in The London Review of Books, we can’t retroactively demand of individuals an agency they never had, expecting them to make personal decisions based on an abstract sense of what might be best for the country—to turn down a public sector job, for instance, because the state has too many people on its payroll—and then be surprised when they won’t pay for the “past sins” of their goverment. We may like to dream that we live in democracies, but they were long ago hijacked by the Hydra of “the markets”; the question is whether the leaders we elect, in Athens or in Washington, can find the will to tame them, and whether we can keep the pressure on until they do.