messy business

A Guardian article from yesterday presented an analysis of the "Greek debt crisis" by four experts from the financial system. It seems that they all agree that things are not looking good. That is, not looking good for the whole of Europe. It makes one wonder why do we keep referring to the Greek crisis and not the "Euro crisis", especially when it is clear that what is being bailed out is the central European banking system (via Greece).

One analyst says:

"For most market participants, it is not a question of if Greece will default but rather when and how. An orderly and managed default would have a less damaging impact than a messy one"

Managed by whom? Damaging impact for whom?

It's clear that the following analyst is worried about European banks.

"...which clearly has the potential to send shockwaves throughout Europe's banking system."

And rightly so. For some time now, Lapavitsas has been warning for a new imminent banking crisis. Like Greece's default and exit of the Eurozone, the question for him is how and when this is going to happen. The two are of course connected. Once again, we know that the bail-out is concerned with saving the banks: instead of pouring money directly to the banks, the Eurocrats lend the money to Greece (or Ireland, or Prortugal) with a clearly written mandate that the borrower uses this money to pay back the banks. The latter are in deep shit lately, after they messed up with lending and speculative profiting during the last decade. They knew they were "too big to fail" and nobody bothered back then. They had to be bailed out once and now they have to be saved again, because the first time round it simply didn't work. In a sarcastic tone, the bankers are telling us: "try again, fail again, fail better".

Schäuble has officially said that Germany benefits from the Euro more than any other country. In the case that Greece defaults and exits the Euro (and cancels a large part of its debt), we will be talking of the hardest blow on neoliberalism in recent times. We might be even talking about the end of the Euro, or Europe as we know it. A very likely result is that the common currency will crash due to all the structural insufficiencies associated with it (so far obvious in the inequality between North and South).

But still, the analysts from the heart of the banking system consider default a certainty. Why did not the first "Greek" bail out work? Why default? Why now? Who is going to manage it? Who are going to be hit hardest from a default? This is a political question: it can only be either the banking system or the people, because of the imposed austerity, which, as the wise analysts are telling us now, is not sufficient. Did they not know that the first bail out was not enough? Of course they did. According to Lapavitsas, the whole project was aimed at stabilising the situation by rolling the private debt to the hands of the European states. So far roughly one third of the Greek debt has been transfered to the IMF, the ECB and the European states. Simply put, around €110bn has left the hands of the IMF/ECB/EU and ended up in the banks. This, and not austerity, was the point.

Austerity is simply not a solution. If I owe you €100 and I make €5000 a month, then I don't owe you much, do I? But if I earn €500 per month, then you might start thinking I won't be able to pay you back that easily. What austerity does then, is making me work less and earn less (soaring unemployment is the main result of austerity): instead of helping me make more money in order to pay you back, you're reducing the chances for you. The very definition of shortsightedness. The real reason behind austerity is simply the same old story of IMF and Latin America or South-East Asia: impose neoliberalism through the managing of debt. Especially when neoliberal theory is such a poor utopianism that nobody can really believe in. Since 2003 IMF had been the most scorned and bankrupt global institution and it was only the new crisis that resurrected it. But the Argentinean spectre will always be haunting it...

The whole thing makes one wonder, how come so much people (in Greece, in Germany and elsewhere) were actually so stupid to believe that the whole problem was caused by the lazy Greeks, and that all it took to fix it was to make them work harder for longer. Oh, sorry, that was last year. Now nobody seems to hold this argument (or at least I hope they don't). Now the argument goes like this: the problem was not that the banks were too lax, but that the were not lax enough. In other words, after Greece, like all governments, poured huge amounts of money to bail out the banks (€108bn so far), now they have to make way for the markets to do the trick. Of course, a major market player will take the place of the previously state-controlled structural sectors, like energy etc., but the money will have to be collected in the right amount, in the right time and in the right place. This of course will be provided by the banks - and that's why "we" need them so badly.

As one of the wise analysts points out (I'm being ironic not because what they're saying is not true, but because they're simply stating the obvious), the Eurocrats are faced with the horrible situation of having to decide when to pull the plug. Brrr! Do you trust them? I certainly don't. Merkel, especially after the ongoing electoral defeats, is in deep trouble trying to persuade her voters that "saving Greece" is to their long-term benefit; she can't really ask them to bail out the banks once again, can she?

You bet it's going to be messy!