TRNN: The Modern History of the Greek Debt Crisis

John Weeks, the author of Economics of the 1%, explains the history behind the Greek debt burden –  

February 25, 2015

I’m joined by John Weeks. He is a professor emeritus at the University of London and author of his new book The Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy.Thank you so much for joining me again, John.JOHN WEEKS, PROFESSOR EMERITUS, UNIV. OF LONDON: Thank you.PERIES: John, so in the earlier segment, we were talking about how Greece got to where it is now–in great debt–and the new finance minister, Yanis Varoufakis, negotiating in Europe with European finance ministers and the troika on what can Greece do in order to make sure it doesn’t default, but at the same time meet its mandate and its commitment to its voters that just elected them into power.But this segment is dedicated to how Greece got there. So, John, how did Greece get there?WEEKS: Well, it’s a long story, which I’ll shorten with, you might say–which I’ll bullet-point.But first let me say one thing everybody should get sorted out, that there’s brinkmanship being played in the European Union, but it’s not by Greece. The Greek government is accused of intemperate language and pushing things to the brink. The brinksman or the brinksmen are in Germany. They aren’t in Greece.Okay. How did we get to this situation? We need to go way back. We need to go back to World War II, when Germany occupied Greece for three and a half years. The Nazis invaded Greece. They occupied it for three and a half years. For three to half years, tens of thousands of people were killed. But the relevant thing for the current Greek debt is that during that occupation, the Nazi government required the puppet government in Athens to make loans to the German government to pay for the occupying forces. You know, you might get your head around that for a moment. So you had the Greek people paying for the soldiers that were occupying them.PERIES: They were forced to do that.WEEKS: They were forced to do that. There was no choice. And loan’s at zero interest rate.At the end of World War II, the German government recognized that this was unfair and it promised to repay it. If that were now increased at the market rate of interest all those years, it would be close to 100 billion euro, about 40 percent of the Greek debt. That debt that Germany owes Greece is not included in the reparations agreements which were made in 1953, and at several other meetings that finally cleared up what Germany owed the victorious powers–by the way, Greece got relatively little of it; most of it went to the major powers, as you might expect.Okay. So why is that relevant? It means the Greek finance minister has raised this, and it is probably something that even could be litigated. But it gives a tremendous moral strength to the Greek argument. I would say that’s the first point to make about how we got here.The second point, before we actually get to the Greek debt, is in 1953 there was a meeting in London over the debts which the German government owed to the victorious powers, and banks and the governments who were the creditors received a haircut. That is to say, the German government managed to get a renegotiation of the debts that it owed, which I think under no circumstances could be considered odious, except in the sense that the German government could have said, well, we are no longer Nazis in power, so we shouldn’t have to pay this. Now all the Greek government is asking for is a similar type of treatment.So how did they get so much debt? I would say probably one of the most important things was in the 1990s, when the Greek government wanted to enter the euro. And this is an example of be careful of what you want, because you might get it. So I’d have to stabilize the drachma in order to enter into what was called exchange rate mechanism.PERIES: Explain that, John. What do you mean destabilize the drachma to enter the euro?WEEKS: In the 1990s, in the planning for the creation of the euro, every government that wanted to join the euro–I forgot the British did not want to join. But every government that wanted to join had to link to, in effect, the Deutsche Mark and hold their currencies stable in relationship to the Deutsche Mark. So their currency was only allowed to fluctuate a little bit. And at the same time, they were required to have a certain rate of inflation and fiscal deficits and debt and so on. But those things were really secondary, because a lot of people were doing a bit of quick and dirty finance about it, such as the Italians, and also the French, in order to make those rules. So the main thing is you have to stick to the movements of the Deutsche Mark.And the way the Greek government did that was by borrowing hard currency to support the drachma in relationship to the German currency. So they built much of this debt not for wild spending on social expenditures or pensions or early retirement, all of these myths about the lazy Greeks. They built most of it up in order to enter the euro.So you got to the year 2000, and they had a substantial debt. And then you come the crisis of 2008 and the bottom falls out of the European economy, revenue declines in every country in Europe, including, of course, Greece. As revenue declines, they go from a fiscal deficit of about 2 or 3 percent, not very large at all, in 2006, 2007, until–in 2000 [sic] it’s up to 15 percent of GNP.Being in the euro, they couldn’t print money. They couldn’t borrow from themselves. So, therefore what they had to do was borrow in–from commercial banks, borrow euros from commercial banks. And that’s how they built up the debt even larger.PERIES: And so now they go into a crisis where their debt is growing at a faster rate and unable to pay it back and is unable to provide any of the basic services necessary for a state to function. And they go back to be bailed out and ask for more money in order to sustain itself.WEEKS: Yeah. You’re right. I’m going to make a couple of points on that. The first point is that the actual absolute debt is more or less stable. The problem is the ratio of debt to GNP. And when you have a declining economy–you know, you don’t have to be a statistician, you don’t have to be a Nobel Prize winner in economics to realize that if one of the your measures or criterion for success, if one of those is a ratio of debt to GNP and GNP is falling, then you’re in trouble, because the major way that countries reduce the heavy debt burden is through growth, not through reduction in how much you owe. So, for example, the United States in 1945 had a deficit coming out of the war that was 250 percent of GNP. Ten years later, it was down to 100 percent.PERIES: Okay. In the minds of the troika and the European powers, how is it that austerity actually works in their mind? Because to ordinary people, this makes no sense. You know, if government cuts back, lays off people, and there’s less revenue being generated for the state by the taxes that they would be paying otherwise, how do they see the economy growing in order to be able to pay back the loans by implementing austerity?WEEKS: Well, it’s a mystery to me, but I’ll attempt to do it.You know, some people half-seriously say, well, the German government is the moving spirit by this austerity. And in German the word for debt and the word for guilt are the same word. And so there’s this underlying idea that debt is a sinful thing. I think there is some truth to that. But I don’t think the German finance minister and Merkel and so on are coming from that place.I think that there is something more sinister going on here, if I could put it that way. Much of those debts are held–Greek debts were held by German banks. And those banks wanted full payment. Just as in the 1980s, the Latin American debt crisis that U.S. banks particularly–but there were also banks in Britain and other places held a debt of Latin American countries. They were saying, we want full payment. And they kept pressing for that until you reached a point where it was obvious that it was impossible. And only then did the U.S. government step in with some mild measures to facilitate sort of a easier repayment of the debt. That was the Baker Plan and then, subsequently, another plant in the mid 1980s.What we have now is a German government still with banks that hold about 20 percent of the Greek debt, plus Germany is benefiting quite a lot from its position of control in the European Union. And it is running a large trade surplus with the rest of the European Union, with the rest of the Eurozone in particular. And I think it is to the benefit of German big business that this austerity, these austerity policies are maintained. Now, so I think that that’s partly–if you want to know the–the formal argument that–they’re down to a very simplistic argument now. They’re just saying with this huge debt, it discourages investment; until you get it down, the economy won’t recover. This is not clear.PERIES: Now, the danger of this, of course, is it’s not just Greece, but there are several other countries that are in a similar situation, as you said earlier. Now we’re looking at Spain in a similar situation. Ireland could possibly be in a similar situation. And this could grow throughout Europe to the point that their whole continent might be in crisis. So what is the solution?WEEKS: Well, first of all, let me say you’re absolutely right. And it has finally become obvious to people throughout Europe that austerity is a class question. The austerity falls on the poor and the middle class and doesn’t fall on the rich.And debt is a class question. The debt is incurred by the rich. They–for the most part the banks and other financial institutions–hold the debt, and it’s the people who pay it off.In addition, that one thing that’s been absolutely crucial to these austerity plans is the reversal of the balance of trade of the countries suffering from austerity policies, into which they’re supposed to run a net surplus and trade. Well, again, you don’t have to know a lot of economics to understand that. So not only has Greek GNP been going down, but the amount available to Greeks has been going down, because if you run a trade surplus, what that has to mean is that what you consume domestically is less than what you produce domestically. And that trade surplus is funding repayment of the debt. It is a unrequited outflow. It’s as if the German government came and picked up in big trucks, you know, Greek olive oil and Greek whatever else Greeks export and shipped it off and didn’t pay for it. That’s in effect what it’s happening. And I think in Spain, in Ireland, that’s beginning to be recognized as what is happening. I think it’s also beginning to be recognized in France. But, unfortunately, the response in France is the rise of far right, not the rise of the left, and that is a real danger.I was–up until just a few months ago, I was quite pessimistic. I thought that the austerity policies were going to provoke a rise of fascism again in Europe. But, fortunately for all of us, in Spain and Ireland and Greece, the progressives are leading the fight against austerity, and I hope that dampens down the rise of the fascists in the other countries.PERIES: Right. And, John, we’re going to be following what the Greek finance minister has tabled in terms of what’s a more rational plan for the Greek people and how the finance ministers of Europe is going to respond, as well as the troika. And I hope you join us for further analysis on this in the near future.WEEKS: Well, I would very much like to do that and I would say to all of your listeners, keep your eye on this, because this is not some strange, arcane thing that’s going on in some small country in the corner of Europe. This is something that affects all of us in every country.

Fonte:  TRNN


delphi declaration

European governments, European institutions and the IMF, acting in close alliance with, if not under direct control of, big international banks and other financial institutions, are now exercising a maximum of pressure, including open threats, blackmailing and a slander and terror communication campaign against the recently elected Greek government and against the Greek people.

They are asking the elected government of Greece to continue the “bail-out” program and the supposed “reforms” imposed on this country in May 2010, in theory to “help” and “save” it.

As a result of this program, Greece has experienced by far the biggest economic, social and political catastrophe in the history of Western Europe since 1945. It has lost 27% of its GDP, more than the material losses of France or Germany during the First World War. The living standards have fallen sharply. The social welfare system is all but destroyed. Greeks have seen social rights won during one century of struggles taken back. Whole social strata are completely destroyed, more and more Greeks are falling from their balconies to end a life of misery and desperation, every talented person who can leaves from the country. Democracy, under the rule of a “Troika” acting as collective economic assassin, a kind of Kafka’s “Court”, has been transformed into a sheer formality in the very country where it was born! Greeks are experiencing now the same feeling of insecurity about all basic conditions of life, that the French experienced in 1940, Germans in 1945, Soviets in 1991. At the same time, the two problems which this program was supposed to address, Greek sovereign debt and the competitiveness of the Greek economy have sharply deteriorated.

Now, European institutions and governments are refusing even the most reasonable, elementary, minor concession to the Athens government, they refuse even the slightest face-saving formula there might be. They want a total surrender of SYRIZA, they want its humiliation, its destruction. By denying to the Greek people any peaceful and democratic way out of its social and national tragedy, they are pushing Greece into chaos, if not civil war. Indeed,  even now, an undeclared social civil war of “low intensity” is being waged inside this country, especially against the unprotected, the ill, the young and the very old, the weaker and the unlucky. Is this the Europe we want our children to live in?

We want to express our total, unconditional solidarity with the struggle of the Greek people for their dignity, their national and social salvation, for their liberation from the unacceptable neocolonial rule the “Troika” is trying to impose on this European country. We denounce the illegal and unacceptable agreements successive Greek governments have been obliged, under threat and blackmail, to sign, in violation of all European treaties, of the Charter of UN and of the Greek constitution. We call on European governments and institutions to stop their irresponsible and/or criminal policy towards Greece immediately and adopt  a generous emergency program of support to redress the Greek economic situation and face the humanitarian disaster already unfolding in this country.

We also appeal  to all European peoples to realize that what is at stake in Greece it is not only Greek salaries and pensions, Greek schools and hospitals or even the fate even of this historic nation where the very notion of “Europe” was born. What is at stake in Greece are also Spanish, Italian, even the German salaries, pensions, welfare, the very fate of the European welfare state, of European democracy, of Europe as such. Stop believing your media, who tell you the facts, only to distort their meaning, check independently what your politicians and your media are saying. They try to create, and they have created an illusion of stability. You may live in Lisbon or in Paris, in Frankfurt or in Stockholm, you may think that you are living in relative security. Do not keep such illusions. You should look to Greece, to see there the future your elites are preparing for you, for all of us and for our children. It is much easier and intelligent to stop them now, than it will be later. Not only Greeks, but all of us and our children will pay an enormous price, if we permit to our governments to complete the social slaughter of a whole European nation.

We appeal in particular to the German people. We do not belong to those who are always reminding the Germans of the past in order to keep them in an “inferior”, second-class position, or in order to use the “guilt factor” for their dubious ends. We appreciate the organizational and technological skills of the German people, their proven democratic and especially ecological and peace sensitivities. We want and we need the German people to be the main champions in the building of another Europe, of a prosperous, independent, democratic Europe, of a multipolar world.

Germans know better than anybody else in Europe, where blind obedience to irresponsible leaders can lead and has indeed led in the past. It is not up to us to teach them any such lesson. They know better than anybody else how easy is to begin a campaign with triumphalist rhetoric, only to end up with ruins everywhere around you. We do not invite them to follow our opinion. We demand simply from them to think thoroughly the opinion of such distinguished leaders of them like Helmut Schmitt for instance, we demand them to hear the voice of the greatest among modern German poet, of Günter Grass, the terrible prophecy he has emitted about Greece and Europe some years before his death.

We call upon you, the German people, to stop such a Faustian alliance between German political elites and international finance. We call upon the German people not to permit to their government to continue doing to the Greeks exactly what the Allies did to Germans after their victory in the  First World War. Do not let your elites and leaders to transform the entire continent, ultimately  including Germany, into a dominion of Finance.

More than ever we are in urgent need of a radical restructuring of European debt, of serious measures to control the activities of the financial sector, of a “Marshal Plan” for the European periphery, of a courageous rethinking and re-launching  of a European project which, in its present form, has proven unsustainable. We need to find now the courage to do this, if we want to leave a better Europe to our children, not a Europe in ruins, in continuous financial and even open  military conflicts among its nations.

Delphi, 21 June 2015



The above declaration was adopted by nearly all participants in the Delphi conference on the crisis, on alternatives to euroliberalism and EU/Russia relations, held at Delphi, Greece on 20-21st of June. It is also supported by some people who were not able to be present. The list of people who signed it follows. In it there are not only citizens of EU countries, but also of Switzerland, USA, Russia and India. Many distinguished American scholars seem to be more sensitive as regard the European crisis, than the … political leaders of EU themselves! As for Russians, it is only normal and natural to bear a great interest for what is going on in EU, as EU citizens bear also an interest for what is going on in Russia. All participants in the Delphi conference share the strong conviction that Russia is an integral part of Europe, that there is a strong interconnection between what happens in EU and in Russia. They are categorically opposed to anti-Russia hysteria, which in fact is nothing less than the preparation of a new, even more dangerous cold, if not hot war.

CrossTalk: Greek pain

The #Grexit Crisis

Thomas Piketty: New thoughts on capital in the twenty-first century

Joseph Stiglitz: A ‘Grexit’ Would Be Very Serious for Europe

Imperdível: “Thomas Piketty, Paul Krugman and Joseph Stiglitz: The Genius of Economics”

Publicado em 6 de mar de 2015

Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent,” wrote Paul Krugman in The New York Times. Krugman and his fellow Nobel laureate Joseph Stiglitz (author of The Great Divide) join Piketty to discuss the genius of economics.