The Greek symptom

All but the smallest countries are divided into regions, North and South, East and West. Agriculture, industry, services, government and leisure activities are not evenly distributed, nor are jobs and the flows of income they generate. When a country forms a nation, these geographical disparities are to some extent compensated, by subsidies to the less favoured areas, by the unhindered capacity to move from one place to another, and by uniform taxation and welfare. When this is not the case, as in those countries that have yet to reach nationhood, some regions are very poor and insurgent.

The European Union has the pretension of supra-nationality. It has a parliament, an executive commission and the trappings of government, but they are subsidiary to national laws and constitutions, their decisions and rulings must be ratified by all twenty-eight members. However, the nineteen member states who adopted the euro as a common currency abandoned their sovereign power over money to the European Central Bank. For some of the project’s initiators, it was a step towards a greater political and fiscal union that was not to be, but for most it was a way of facilitating trade and of avoiding the change fluctuations of the different national currencies. No one envisaged any wealth sharing among nations, as even agricultural subsidies went to the richest. For the people it was new notes and coins, along with rising prices in the South and falling prices in the North as the cost of living converged in the common measure. And the convergence in the cost of goods imposed a convergence in incomes and, hence, in the cost of services. In the Northern countries salaries could be reduced – in fact they stagnated for several years – but in the Southern countries they had to increase, all the more so where the gap was the widest.

The European Monetary Union was divided from the start by price convergence from opposite ends. In the North, falling wages meant rising profits in the commercial sector and budget surpluses in the public sector. In the South, rising wages meant falling profits and budget deficits. Germany was able to reduce production costs and gain market shares, and to finance the reunification of East and West. But, at the other end of the convergence spectrum, Greece’s production shrank and its borrowing expanded. Greeks were finding imported products more affordable and tourism in Greece was getting more expensive. So there was more incentive for Greeks to buy German cars and less incentive for Germans to visit Greece. And the trade deficit was settled by Germans buying Greek Treasury bonds. To make matters worse, the Greek government imported a lot of military hardware, notably from Germany, even though it has NATO protection by being a member country.

Price convergence in the monetary union made consumer products from the North more attractive and tourist destinations in the South less so. And, though cars, washing machines, computers etc. cost about the same everywhere, there are plenty of cheap holiday resorts outside the Union. Convergence drove the South out of business and plunged it into debt and trade deficit, and Treasury debts paid the deficit. This variant of Ponzi’s scheme – practised by the US since the Nixon presidency – was made possible by the “gilt-edged” quality conferred on Southern bonds by their “euro” denominations. For a number of years, the Greek government was borrowing money at the same rate of interest as the German government, meaning that both debts seemed equally secure to Northern lenders. So the North sold stuff to the South and was paid in IOUs, but the makers and dealers of stuff were being paid cash, so everything seemed fine. The transfer of commercial credit to public debt also transfers the risk from the dealer to the bond buyer. German banks bought Greek T-bonds to pay for German exports to Greece. “How much do you want?” And it went smoothly until 2007/8 came along.

The subprime mortgage collapse in America sent shock waves throughout the world’s financial system and showed how feeble its foundations were. There followed a lot of propping up with huge sums of money from public purses and central banks, but financial institutions had proven their fundamental fragility and wide cracks remained. The European Union was in disunity as each member country fended for itself, while the euro zone tried to ignore its commonwealth of monetary union. But, when the weakest links gave signs of stress, the euro group was faced with the choice of paying or excluding. It paid for Cyprus because it was cheap, but then Greece began to flounder, and lined up behind like dominos were Portugal, Ireland, Spain, possibly Italy and why not France and the rest. Paying for one would mean paying for all, and excluding one would be the end of the Union. As neither alternative was acceptable, an austerity diet was forced on the poorest. Across Southern Europe welfare, salaries and pensions were reduced, some by more than half. This brought down public spending, but it also cut household spending and the corresponding tax revenues.

Austerity is recessional and can only aggravate things when the recession is already under way. So Southern Europeans go hungry while their Northern partners take a moral stance on excessive borrowing. This has not resolved anything. The debts are still pending and there is no conceivable way they can ever be paid back, an impossibility that applies to debts worldwide. Historically, Treasury debts have seldom been refunded, and there are no examples since the end of the 19th century. Their proportion of GDP is reduced by economic growth or it is cut by inflation, but in absolute terms the debts keep on growing. Over the past decade, the rates of growth and inflation have been too low to compensate the high rates of borrowing, especially since the 2008 knock-out. The result is that most countries have Treasury debts that approach or exceed their GDP. The high proportion of Greece’s debt is partly due to a reduced GDP, but it is not the only country to have a debt emergency. Excessive debt poses an urgent problem throughout Europe and around the world. Bashing Greece seems cruel and pointless, unless it is an experimental case to see if bankers can command governments, and if the power of money can trump the will of the people. Desperate capital is testing the limits of democracy, finding how far it can convince before it has recourse to more forceful methods. And Europe’s political and social disunion means there are no institutional solidarities to oppose it.

A European Union of regions might have succeeded in building cross-border solidarities, but a Union of nations could not. To be Europeans, the people of Europe would have had to break away from their nationalist past and organise local networks of production and distribution inside a continental structure. But too many vested interests opposed this national demise for it to happen. Industry, commerce, banking, media networks, cultural institutions, academia, politicians, trade union officials, military and security hierarchies, landlords, all the superstructure of society that benefits from national funds, subsidies, contracts etc. resisted any reduction of its prerogatives. And now that nationalism is regaining vigour, the slightest European encroachment is a source of conflict and strengthens the arguments for exit.

The peoples of Europe have let their leaders take them along a path that has no destination. They believed the promise of unity, solidarity and peace, without realising that it would be the union of capitalist exploitation, the collusion of monopolistic corporations and law enforced social passivity. The Greeks have been cheated, but so have the Germans and everyone else, those who are paid a living wage and those who are not. The common market and the common currency were designed to facilitate the movement of commodities, labour and money inside the Union. This accelerated circulation of goods, people and cash was very profitable for companies and their owners, but their employees did not benefit much, nor did the least favoured and least industrialised parts of the continent, so the non-beneficiaries were encouraged to borrow. The rich got richer and the rest got deeper and deeper in debt. Despite the demagogy, the tremolos and the Rights of Man, Europe has followed the same course as America and Asia, by financing the private accumulation of wealth with Treasury and household debts. This is a mechanism that can only function when strong growth or high inflation, or both, constantly reduce the proportion of debts to incomes. However, growth and inflation are linked to the material world of producing goods and supplying social services, not to the ethereal world of money and finance. And the later have become largely predominant as the ratio of debts to incomes has multiplied. So that exchanges of immaterial values control the world’s markets and can make or break any government.

The present long debt cycle is reaching its term. It is faltering, but its momentum gives the illusion that it is still under power. The unfolding Greek tragedy is exemplary. It shows Europe and the world where they are going. Borrowing has peaked – old debts are rolled over and new ones just pay interest – so that unpaid added value cannot be monetised. The fuel for the accumulation of private property has run dry. Industrial and commercial profits will shrink, debtors will default and tenants will fall behind on rent. The tribute of labour to the private property of the means of production, in the form of unpaid added value, needs a second tribute for its monetisation, in the form of usury. Without the second, the first tribute is just excess production, a supply that has no solvent demand. Competition for market shares will be increasingly ferocious, between companies and between states. Capitalism is a predatory system, and when a nation’s stock is depleted, it will try to prey on its neighbours. Or so it was in the past, but globalisation has synchronised national cycles and depletion is occurring everywhere. There is no one to prey on, no one to dump on.

That Greece should find itself at the heart of the storm, at the tipping point of events, is highly symbolic. Greece is the cradle of Western society, of its art and culture, its politics and its market economy. It was there, in the 4th century BC, that Aristotle warned Athenian citizens of their city’s future danger, if the desire for money became stronger than the desire for things money can buy, or as Marx would put it much later, if M-C-M replaced C-M-C. Today, Alexis Tsipras is giving the citizens of the world a similar warning, if money is considered more important than life, humanity is in trouble.