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The bailout of Greece by European players worked.
Yes, despite implementing draconian austerity measures, Greece is still neck-deep in a years-long recession. Yes, unemployment among youth is over 50%, and 1 in 5 young Greeks plan to flee the barren wasteland that is the current Greek employment landscape. Yes, families are expected to live on just hundreds of euros a month. And yes, standards of living have plummeted while the cost of living skyrockets. The rate of suicides is alarming, homeless shelters are overcrowded, the Greek government is in tatters, tourism is down and extremism is rising.
Yes, Greece has been beaten down into a bloody heap of a broken society crumbled at the bottom of what Germany has affectionately labeled a “bottomless pit.”
But saving Greece wasn’t the goal of “aiding Greece.” Containing her was, and the news over the last few weeks demonstrates that in that respect — when the austerity-only bailout program is viewed not as a lifesaver but as a European tourniquet to isolate a wounded sovereign appendage — the bailout program was a wild success.
One need not look any further than the fact that talk of a Greek exit from the eurozone was taboo just two years ago. Now, diplomats and eurozone leaders are publicly strategizing about how to handle a Greek exit. Others are speculating about kicking Greece out of the European Union all together. Many European leaders are even going so far as to proclaim Greece’s upcoming elections as a referendum on eurozone participation. What was once taboo has now become the talk of the town now that European banks and bondholders have been sufficiently protected from Greece’s internal nightmare.
In case it wasn’t clear before, it’s crystal clear now: the hundreds of billions of euros poured into Greece over the last several years were not meant to buy salvation for Greece and her suffering people. Rather, the massive influx of funds was meant to buy time for Europe to prepare for a Greek implosion.
Take yesterday’s report in the The New York Times:
Its membership in the euro currency union hanging in the balance, Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout.
But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets. […]
As they pay themselves, though, the troika members are also withholding other funds intended to keep the Greek government in operation. […] In an elaborate payment system that began after the May 6 election that brought down the Greek government and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payments on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.
It is not shocking that Greece is being used a passthrough to stabilize or recapitalize European institutions. Just last week, Bloomberg provided an in-depth analysis of the Greek bailout program and found that Germany received more benefit from the program than Greece:
In the millions of words written about Europe’s debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences.
Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.
Even back in October 2011, it was clear that the bailout program was less about saving Greece and more about propping up private sector bondholders:
More than half of the money lent to Greece so far by the International Monetary Fund and European nations has gone to repay bondholders, a transfer of billions of dollars from taxpayers around the world to European banks and pension funds that invested in the troubled Mediterranean nation.
As the country struggles with a collapsing economy, violent strikes and historic levels of unemployment, a new analysis of an international bailout program shows the degree to which money provided to support Greece has been used to pay off its debts to the private sector. […]
The new data on Greece’s debts illustrate the mammoth burden posed by the country’s more than $300 billion in outstanding loans — an amount that eclipses the size of its economy. It also highlights the risks that IMF and European officials took when they approved the original bailout plan last year without demanding that private investors accept losses on their Greek bonds.
Restructuring a nation’s debt is a well-recognized strategy for cases in which what the country owes outstrips what its taxpayers and companies can repay. The argument at the time, pressed most forcefully by officials from the European Central Bank, was that imposing losses on private investors would wreck the euro region’s credibility and possibly prompt international bond markets to turn on other countries, such as Spain and Italy.
Nearly 18 months later, with billions of dollars in public money already paid out to bondholders, Greece’s situation has only worsened, and Spain and Italy have come under market scrutiny anyway.
And in February 2012, a leaked report revealed that the Troika was fully aware that its bailout program would do little to help Greece’s situation. From Forbes:
As it stands right now, the Greek bailout and debt deal agreed by European Finance Ministers is a farce, a program designed to pay Greece’s international creditors and buy time to somehow engineer growth in a completely uncompetitive economic environment.
A leaked internal Troika memo proves that even under a relatively optimistic scenario, Greek debt-to-GDP levels would only fall to 129% by 2020 and could remain as high as 160%, while financing needs would still exceed Greece’s capacity to pay, prompting German daily Der Spiegel to ask the EU to admit Greece is bankrupt and stop the bailout package.
Earlier this year, I wrote a piece that analyzed how the Greeks should be aware of European “gods” bearing gifts:
There will always be “steps” that Greece must take to satisfy foreign creditors and fellow eurozone members. Yet steps toward what? Nobel prize winning economist Paul Krugman has stated flatly that Greece will default, pointing out that the country has already defaulted on its debts and proclaiming the situation in Greece to be “essentially impossible.” […]
As we approach the endgame, it’s become clear that the recent measures demanded of Greece were less about saving her people than about buying time for the eurozone to fortify itself against a Greek default. In that sense, the troika’s policies have not completely failed. The prospect of an “orderly” Greek default is more palatable now that the environment has been constructed whereby Greece will collapse into her hollow self rather than explode and take the whole global economy with her. It’s not surprising in this context that days after the Greek austerity vote, German’s Finance Minister Wolfgang Schaeuble warned “we are not going to pour money into a bottomless pit.”
The Greek government has committed many sins over many decades. However, while incompetence and corruption have exacerbated Greece’s dire economic situation, they are not its sole cause. Greece’s weakened state made it far more susceptible to the global recession, and as a result Greece became the first nation to truly feel the brute force of a worldwide economic downturn. With no leadership to guide Greece forward, and with international players far more interested in European bank stabilization than stabilizing a society that gave birth to democracy, Greece’s present state is not surprising.
Earlier this week, Christine Lagarde, Chief of the International Monetary Fund, sparked a firestorm when she said she thinks more about children in Africa than about children in Greece. When asked about children who are bearing the burden of harsh austerity policies, Lagarde stated that “Well, hey, parents are responsible, right? So parents have to pay their tax.” She has since tried to walk back from what many are calling her Mary Antoinette moment, but her initial comment — in all its misinformed, inaccurate and callous glory — was a peak behind the curtain. It was a moment of brutal truth, but not about tax evasion in Greece (a problem which hardly accounts for the entirely of Greece’s financial situation). For a flicker of a moment, the world got to see the true nature of the game being played — not with Greece, but on it.
Fundamental structural reform was necessary, but years of a severe austerity-only program decoupled from any type of robust growth policy aimed at rebuilding Greece has produced a broken society only slightly less bankrupt than before. Without continued installments from the IMF and EMSF, Greece will be broke by the end of the June. In the meantime, European players who have been buoyed by billions of euros funneled through the shell of a hollowed-out and weakened Greek political and economic system are actively working on how to further insulate themselves from the ultimate and tragic endgame: a possible Greek eurozone exit.
Any such exit, a report this week revealed, would immediately slash Greek household incomes by over 55% while causing unemployment to skyrocket to over 34%. In short, countless of Greek families would fall victim to Europe’s game of profit. But that game was never about the people of Greece anyway, was it?Back to top