Greece and the decline of Europe[1]

By Savas Michael-Matsas

It is well established, following Edgar Allan Poe and his Purloined Letter, that the better place to hide a secret is the most exposed one. Today’s Greece undoubtedly is the most exposed place in the world to hide the purloined letter containing Her Majesty’s secret confession: the announcement of the bankruptcy of the entire European Union project.

Both the flood of propaganda by the mainstream media or the racist obscenities spread in Northern and Western Europe about the Greeks as “lazy and congenital crooks” cannot convince anybody that the never ending saga of the unresolved Greek debt crisis represents just a “national exception”. If it was so, why the future of a relatively tiny economy representing only the 2.7 per cent of the entire European GDP hovers as a frightening ghost all over the metropolitan centers of global capitalism? Why it pre-occupies so intensively – and unfruitfully- one EU Conference after another, the last two years?

The high degree of interconnectedness developed under the conditions of globalization of finance capital became, after its implosion in 2007-2008, the Nemesis of the global system itself. “The strength of a chain depends from the strength of its weakest link” said a Goldman Sachs’s official interviewed by the Greek newspaper Vima [2] in relation to the financial and banking crisis in Europe. Greece is the weakest link in the international and European capitalist chain.

For this reason, the Greek tragedy was soon followed by the similar fate of Ireland and Portugal that have to accept similar bail outs under similar draconian austerity terms, and later by the far more dangerous sovereign debt crisis of Spain and above all of Italy. Furthermore, the downgrading of the creditworthiness of a large number of EU countries, including the loss of the triple “A” position of France, demonstrated that no more the periphery but the core itself of the EU, the French-German axis of the European economy is hit.

From the other side of the Atlantic Ocean, the US authorities and the US banks over-exposed to Europe cannot hide their growing worries. It is no more a taboo for State officials, financiers or mainstream analysts to speak openly not solely for a default of Greece but for a real break up of the entire Euro-zone provoking a global financial meltdown, and accelerating an already worsening global Great Recession or, rather Long Depression. In such an apocalyptic view, Greece’s default will play the catastrophic role of a Lehman Brothers II.


The split over the second Greek bail out

During the long debates leading to the last  crucial episode in the protracted Greek debt saga, the second bail out of Greece, German Finance Minister Wolfgang Schäuble and his co-thinkers in Germany, Netherlands and Finland, opposed the apocalyptic scenario and promoted the case in favour of a Greek default. They were claiming that the EU is now much better armed to face major repercussions and contagion risks, thanks to the workings of the European Financial Stability Fund (EFSF) and the forthcoming European Stability Mechanism (ESM). The firewall was further strengthened apparently by the European Central Bank’s policy to provide low cost liquidity- more than one trillion euros to be paid in three years with an interest rate of just one per cent- to banks by the Longer Term Refinancing Operation (LTRO). According to the memorable words of Her Schäuble, to provide a new “rescue package” to Greece means “to throw billions of euros in a bottomless pit”.

The Schäuble line was strongly opposed by a bloc of EU member States, which have lost their triple A credit rank, and stressing the enormous dangers of such an “un-orderly” or “orderly” Greek default: the peripheral EU countries, and above all Sarkozy’s France and Monti’s Italy, first candidates to fall victims of a contagion tsunami after a Greek bankruptcy. Even Germany’s Prime Minister Angela Merkel had to take her distances from her Finance Minister’s positions, revealing that the existing deep split among the European ruling classes extends within the German bourgeoisie itself[3].

In a sense both opposed lines are partially right – and equally wrong. The new deal reached finally, after an agonizing process in the Eurogroup meeting on February 19-20, can show it.

It involves a 130 billion euros package to bail out Greece linked with an agreed PSI (Private Sector Involvement) of the private bondholders, a 53 per cent “haircut” of the nominal value of the Greek state bonds.[4] It is tied with a Memorandum of devastating new “austerity” measures of social cannibalism to be imposed in a society already devastated by the previous Memorandum of the first bail out in May 2010.

The previous Memorandum was a catastrophe in social terms (more than third of Greeks now are surviving under the poverty line, and half of the youth is unemployed) and a miserable failure in economic terms. In 2010 the debt stood at 120 per cent of the GDP; in 2011, one year after the “rescue” operation, it has increased into an unsustainable 169 per cent. The goal of the new bail out is to shrink the magnitude of the debt at 120.5 per cent in 2020, slightly up from the level of the starting point in 2010.

Schäuble, from his side, is right to speak, with his usual Teutonic elegance, about billions of euros thrown into a bottomless pit. The entire second “plan of rescue” of Greece is totally unrealistic, if we look the figures in the IMF debt sustainability analysis, which calculates the level of the Greek debt in 2020 to be at least 160 per cent.

The impossible goal of 120.5 per cent has as a precondition, according to the Memorandum, a constant increase of the annual primary surplus (after the payment of the debt obligations) of the Greek economy, starting from 2013. How this could be possible with the introduction of the most savage recessionary measures- a 22 per cent cut to all wages, a cut up to 20 per cent to pensions, a cut of 15 thousand jobs in the public sector until April 2012 and a total of 150 thousand jobs of civil servants until the end of 2014, closure of more hospitals, schools, and universities etc. – in an economy where recession hit a 7 per cent in 2011 and another 6 per cent fall is expected in 2012?

From the other side, the opponents of Schäuble’s line are right to insist to the horrifying consequences of a Greek collapse on a Euro-zone crashed by an unbearable mountain of debts, with an extremely fragile banking system, and an economy in contraction. The total resources of the EFSF and ESM combined- a sum between 750 to one trillion euros- are unable to confront an inescapable contagion to Italy with a national debt of 1.9 trillion euros, and filled with Spanish toxic bonds as well as to crumbling.

Spain filled by Portuguese toxic bonds, while Portugal itself already asks for a haircut of its sovereign debt and to be bailed out again.

The Institute of International Finance (IIF), which has waged the PSI negotiations on behalf of the private bondholders, in an internal document dated February 18, 2012 and later released by Reuters[5], the losses from a Greek default would be around one trillion euros and an emergency bail out both of Spain and Italy would be necessary.

Insofar the LTRO by the ECB is concerned; it represents a kind of Quantitative Easing in disguise, “a useful fiction” to use the words of James Mackintosh[6] with some very short term results. By printing money and providing liquidity to the European banks in December 2011 and February 2012, the ECB under the leadership of Mario Draghi took an emergency measure against the frozen inter-bank market and an extremely dangerous credit crunch. But a short term policy to deal with lack of liquidity is   inefficient to solve a generalized insolvency problem. Europe’s banks remain among the world’s riskier assets and the debt crisis is exacerbating by the recession in the Eurozone. The LTRO is unable to break the debt-recession vicious circle, as most of the newly provided money remains inside the financial sector, circulating between banks, government debt, and the ECB, and it does not reach “real economy”, the productive sector itself.

The central problem is not lack of liquidity but a historic crisis of over-production of capital. “The enormous pile-up of money which remains uninvited is doing so because there is no place to invest with a reasonable hope of return”, Hillel Ticktin rightly stresses[7].

The strong medicine provided by the ECB can have some palliative effects but its side-effects can be proved extremely dangerous, if not lethal.

The general euphoria following the LTRO was broken by the criticisms expressed by the Bundesbank and Standard Chartered stressing the danger to have in three years time, one trillion euros of bank funding all maturing within barely two months in late 2013/early 2015 and triggering panic.[8]

Jens Weidemann, president of the Bundesbank, in a letter to Mario Draghi, emphasized the dangers for Germany coming from the ECB’s easier collateral arrangements in the LTRO and the ballooning imbalances in the euro-zone’s payment mechanism known as Target 2. Germany’s Target 2 claims stood at 498 billion euros in January 2012, the largest item in Bundesbank’s balance sheet, equivalent to 20 per cent of the German GDP. In other words, a break up of the euro will cost immediately to Germany the loss of 20 per cent of its GDP…[9]

In the case of the break up of the eurozone, produced or not by Greece’s or another peripheral European country’s default, Germany is “the country which will lose more, apart from Greece “, as Hillel Ticktin rightly pointed out.[10]

Both lines towards Greece’s default, Schäuble’s as well as of his opponents, are short term attempts to win time, and they do not provide any real solution to the crisis. As a matter of fact, the divisions and bitter infighting among the ruling classes of Europe, including the split in Berlin, the most powerful centre of the EU, reflect the lack of any coherent long term strategy to solve the systemic crisis. The strategy of neo-liberalism imploded in 2007 and no return to the Keynesian strategy of the post war expansion (which has collapsed in 1971-73) is possible. There is a strategic void, expression itself of an historical impasse in which is irreversibly trapped the declining capitalism in Europe. The growing impossibility for a mediation of the driving contradictions of the system defines precisely what decline is.


The decline of the Nation State

Greece’s undeclared bankruptcy and the failure of the EU to deal with it or even to control the implications of its default, despite numerous Summits, interminable deliberations and two bail-outs, are a manifestation of the historic incapacity of the European bourgeoisie to overcome the crisis of the Nation State and unify, economically and politically, the Continent.

In an early period of the imperialist epoch, when the universal development of the modern productive forces already had started to suffocate in the straitjacket of the national borders, Briand expressed the need of the ruling classes by raising the goal of a “United States of Europe” on the basis of capitalism. A century later, either by the barbaric means of two world wars or by sixty post-war peaceful years of efforts by the Western European governments to integrate European capitalist economy, the goal proved to be beyond reach.

After the collapse of the Soviet Union and the end of the Cold War, the European Union project based on a common euro-currency established by an agreement between German and French imperialisms, first in the Maastricht Treaty, had as aim to make an integrated capitalist Europe, under the French-German condominium, a powerful competitor for world hegemony in the post-Cold War chaotic world.

Twenty years later, despite the extension of the EU in 27 members States and a common currency in the Euro-zone, the whole project falls apart. The future of the euro itself and of the Euro-zone is rather bleak, and all the old national imperialist antagonisms and nationalisms that had often transformed Europe into a hell are coming back, with German nationalism, playing again the fatal role of the protagonist.

Germany is too small to play a global role and, at the same time, more powerful from any other European country, although not from all European countries put together. Twice, the historically delayed German imperialism tried to establish a German Europe as a Lebensraum, a living space for its capitalist development by military means and failed. Now, as the most powerful economic engine of Europe, it retries to establish a German European Union based on its traditional Ordo-liberalismus, functioning with an iron fiscal discipline imposed by Berlin through Brussels, and ejecting from the Union or reducing into the status of protectorate over-indebted peripheral countries like Greece. It will fail again, as it fuels all the centrifugal forces that are breaking apart the Euro-zone, its real Lebensraum that permitted the export economy of Germany to accumulate enormous surpluses thanks to the deficits and encouraged indebtedness of the now demonised European South.

After the Second World War, Ordoliberalismus was introduced in Germany but within an international Keynesian framework of capitalist expansion, not in conditions of global recession, as today. It cannot be but catastrophic for Europe and suicidal, at the last instance, for Germany itself.

The second bail-out of Greece represents, as Wolfgang Münchau has written, its transformation into “the eurozone’s first colony[11]. It is true that the terms for the new package are of a colonial type, eliminating any trace of economic sovereignty.  An escrow account is created to depose the loaned sums for the lenders to be paid any moment, bypassing Athens. The proposal by Shäuble  to appoint a fiscal Kommissar on the Greek government with the power of veto economic policy decisions – a provocative proposal  that produced  voices of indignation in Greece and internationally – was withdrawn only to be accepted and extended into a task force of EU Kommissars surveying  the finances of  all Greek ministries. A special article will be included in the Greek Constitution making mandatory all the payments to the foreign lenders. The pusillanimous Greek bourgeoisie and all bourgeois parties of the country accepted these terms of total submission.

As other countries with sovereign debt crises such as Portugal, Spain, and Ireland fail to meet the targets put by Brussels and Berlin, similar Kommissars are prepared to take charge of their finances. It is quite understandable that furious national reactions are ignited everywhere in the imperialist European “Union”.

To speak for “Eurozone’s colonies” like Münchau is to use a good metaphor, which is just that- a metaphor with all its limitations. The Eurozone is not an Empire, even less a German Empire under a unified imperial political power. It is a Union of dominant antagonistic European imperialisms, which proves now to be temporary, disintegrating and passing away. “Europe’s ‘proud empire’ ” remarks a title of an article by Andrew Roberts, “is entering a cul de sac of history”. And the article concludes: “…Europe’s fire has gone out”.[12]

To remain in the iron cage of the EU is unviable. But also a return back to the National State and national currencies in today’s conditions of advanced capitalist globalization is no solution. A nationalist turn inwards is a blessing for the growing far right and a recipe for economic and political disaster.

Greece and the other over-indebted countries in the EU cannot make any step out of the current impasse without cancelling the foreign debt without compensation to the international usurers. But such a step has its own necessary logic: the first step cannot be taken without a break from the EU and the Eurozone and immediately it has to be linked to a series of other absolutely necessary measures: nationalisation of the banks and all strategic key sectors of the economy under workers control, a re-organization of the entire economy on new socialist bases. The political precondition for such a revolutionary change is the overthrow of the capitalist government and repressive State apparatus by the action of the masses themselves, organized in their own independent organs of struggle, which will become the organs of a new power- workers power. The consolidation of the power of the working class and of its work of re-organization of the ruined economy is possible only through the extension of the social revolution all over Europe and internationally.

The historical material basis for this epochal change in Europe is much more mature than in 1917. The interconnectedness of the social economic processes determines, not in a linear way but through unevenness and contradictions, the combined international character of the coming European social revolution. Revolutionary developments can spread all over the Continent much more rapidly than in the past. The key question is again the timely subjective preparation and organization of the revolutionary vanguard within a combat Party of the working class,   armed with an international perspective and program- a party of the Permanent Revolution.

The fundamental driving contradiction is between the universal development of productive forces and declining capitalism, the barriers of capitalist relations and its necessary basis, the Nation State. The working class should not count into the social democratic fallacy of a “reformed”, democratized” EU nor into nationalist isolation and exclusiveness. The only road forward is the common struggle of all European workers and impoverished masses for a socialist revolution to destroy the imperialist EU and build a United Socialist States of Europe.


The decline of bourgeois parliamentary democracy

It is noteworthy that the new, vicious, anti-working class, anti-popular Memorandum with the EU, the ECB and the IMF, was signed by a non elected Greek government under the technocrat, banker, and former vice-chairman of the ECB Lucas Papadimos imposed by the EU in November 2011. At the same time, the same forces imposed in Italy a non elected “government of technocrats” under Mario Monti. Both events mark not the triumph of technocracy but the death agony of parliamentary democracy.

The political framework, which is the most adequate to the needs of capitalism, is liberalism, bourgeois parliamentary democracy.

A purely technocratic rule is a fiction: even the Monti government, composed exclusively by technocrats, needs to be supported by the center right party of the PDL and the center left PD, although this parliamentary majority does not anymore reflect the current social political reality or the will of the voters.

In Greece, as usual, “technocratic rule” is a farce: the government of the technocrat Papadimos stands or fall on the support in parliament of the discredited bourgeois parties of the “socialist” PASOK and the right wing “New Democracy”, which repetitive polls show that they currently represent only a shrinking minority, less than 30 per cent of intentions of vote. In other words, a fictitious technocratic rule stands on a fictitious parliamentary “majority” totally discredited, hated and openly challenged by the huge majority of the people rebelling against its savage measures.

It is not accidental the fact that the movement of the Greek indignados that occupied Syntagma Square and other squares in the capital and all over the country in 2011 overwhelmly asked not parliamentary but “direct democracy”, democracy from below. Despite the vagueness of the call, it represents both a critique of the actually existing bourgeois parliamentary democracy and a demand, although abstract, for a democracy of the self-organized popular masses. It is not yet a call for a seizure of power by the working class. It finds itself in a crossroads: either the mainly petty bourgeois forces demanding direct democracy will  be won in the struggle for workers power or they will re-turn to the cage built for them by the bourgeois politicians of the parliamentary fraud.

Greece shows, at that level too, the road to be followed by all other European countries, which as well face, in one or another degree, a deep crisis of bourgeois rule. It is the decline of capitalism, globally and particularly in the Continent that was its own birthplace, the driving force of the decline of parliamentary bourgeois democracy.

The Parliament is reduced into a rubber stamp for decisions taken behind the walls by EU bureaucrats, IMF directors, bankers, finance investors, the so called faceless “markets” and their subservient political personnel. All the dearly acquired democratic gains and social rights of the working class, (the right to collective bargaining is formally abolished in Greece in the second Memorandum), are destroyed. State repression escalates at levels not previously seen as social despair and mass anger become uncontrollable and explodes in occupations of public buildings and squares, street fights, riots, and popular revolts from Athens to Madrid, Rome, Lisbon and London.

The question of democracy and of its relation to the struggle for Socialism is posed again in a form even sharper than in the 1930s. The experiences, and bitter theoretical and practical lessons of that period, incorporated first of all in the struggle between Stalinism and Trotskyism, have the most urgent strategic actuality.

Sectarian dismissal of the relative differences between democratic and openly dictatorial forms of bourgeois rule, in the name of an abstract propagandist appeal for a socialist future, could be disastrous and should be opposed.

But, from the other side, any subordination of the political independence and  activity of the working class to blocs with bourgeois liberal and petty bourgeois democratic forces, in the name of defence of bourgeois democracy , and “of European liberal democratic values”, as we often hear in our days, is suicidal. It could lead to a tragic-farcical repetition of the “Popular Fronts” of the 1930s that paralyzed the revolutionary masses, betrayed the Spanish Revolution, and precipitated the victory of fascism and the descent into the abyss of the world war.

The defence of freedom has to be advanced by revolutionary means, in a united front of the working class and all the deprived people against capital’s rule, in a struggle for workers’ power and Socialism.


Towards a European Spring

When Schäuble again, this living embodiment of Ordoliberalismus, proposed to postpone indefinitely elections in Greece until the terms of the new bail-out are fully implemented, he does not solely showed his cynical disdain for parliamentary or any other democratic decision making; he expressed also his deep fear that the rebellion of the masses is far more powerful than the extremely weak bourgeois political system of the country, which despite the State brutality, could be wiped out.

In the polls, a strong and growing majority of the people are turning to the parties of the Left to fight back the Memorandum and the troika of EU/ECB/IMF. In the streets, above all, non-stop mass mobilisations of workers and from the rapidly impoverished popular strata, despite the obstacles put by the trade union bureaucracies, the reformists, the Stalinists and the centrists, represent a growing threat to bourgeois rule. General Strikes, mass rallies and occupations of squares, particularly in the Syntagma Square in front of the Parliament, occupation of Ministries and other public buildings, popular assemblies formed as rallying points of deliberation and struggle in every popular and working class neighbourhood, make clear that “those below cannot be ruled as before and those above cannot rule as before”, according to Lenin’s famous definition of an emerging revolutionary situation.

The German Finance Minister may do not fear anymore the economic contagion risk of a Greek default; he is terrified, nevertheless, by the risk of political contagion after a revolutionary explosion in Greece. It could put in flames the entire Continent, initiating, as the Tunisian and Egyptian rebels did in the Middle East last year, a Spring of revolutions, in Europe this time.

As in the 1848 European Spring of the peoples, our battle cry should be: Revolution in permanence!


February 22-24 /March 8, 2012


[1] This paper is a new expanded version of the talk initially  presented in the Critique Conference 2012 GLOBAL CAPITALISM AND THE ECONOMIC CRISIS-PASTS, PRESENT AND FUTURES, London School of Economics, 25 February 2012

[2] To Vima, 15 January 2012

[3] Berlin split on Greek bail-out by  Gerrit Wiesmanm and Quentin Peel, Financial Times, February 17, 2012 p.2

[4] Eurozone looks to pare back 170 bn euros cost of second Greek rescue package by Peter Spiegel and Alan Beattie, Financial Times February 20, 2012 p.1

[5] www.,  on 6/3/2012

[6] See The Short View, Financial Times  February 17, 2012 p.13

[7] Hillel Ticktin Critique Notes in Critique 59 vol 40 number 1 February 2012 p.8

[8] Patrick Jenkins, Banks must beware the side-effects of ECB magic medicine Financial Times March 6, 2012

[9] See Wolfgang Münchau, The Bunbdesbank has no right at all to be baffled, Financial Times March 5, 2012, and Simon Nixon, Wall Street Journal, March 6, 2012

[10] Hillel Ticktin, Critique Notes, Critique 58, vol. 39, no 4, December 2011 p. 481

[11] “Greece will have to default if it wants democracy” by Wolfgang Münchau, Financial Times February 20, 2012  p.7

[12]Europe’s ‘proud empire’ is entering a cul de sac of history”, Financial Times, February 17, 2012.

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