Now, the question is: where does this debt come from?
Greece had been running a government deficit since 1973 and very high deficits since the early 80s. Economic development was limited mainly to tourism and shipping. There was little chance of competing in industrial production against northern European nations, particularly Germany. Greek governments used money to provide public sector jobs, generous pensions and social benefits. By joining the Eurozone at the rate of exchange that they did, the Greek people got a lot of Euro for their converted drachma, and thus plenty of purchasing power to buy imported consumption goods from EU members at favorable price. Interest rates were also low, but this would not go on much longer.
The excess of imports over exports made the deficit worsen. While Greek purchasing power was helping to boost the EU economy (mainly German), it was not flowing back into national economy – not flowing into domestic tax payments.
When Greece joined the Eurozone, it falsified its debt figures. In 2001, head of central bank L. Papademos worked with Goldman Sachs to make complex derivative deals which allowed to hide the true extent of the debt and ended up almost doubling its amount. In 2010, right after the Pasok Party came to power, they revealed the fact that the figures had been fudged all along, and that the debt was so large that Greece couldn’t pay.
The IMF European staff unanimously agreed the debts were fraudulent, and way beyond the ability to be paid. They had got to be written down. The board of directors agreed as well.
But Dominique Strauss-Kahn, then head of the IMF, aimed to run for France presidency. President Sarkozy warned him that French banks were the largest holders of Greek debt. If Greece didn’t pay, the French banks would go under, and German banks would follow. Then, at the 2011 G8 summit President Obama told that his major campaign contributors (primarily, Goldman Sachs) were on Wall Street, and they had made huge bets that Greece would pay. Thus, it was necessary to lend the Greek government the financial aid to pay the bond holders, so that Wall Street banks wouldn’t lose their money. Greece would be sacrificed and driven to poverty.
So, the ECB and IMF decided to ignore the stats and paid over 100 billion Euro to the bond holders. From then on, Greece, instead of owing to Wall Street private bond holders, owed to the IMF and ECB.
Now the ECB wants to get paid, but there is no money in Greece’s coffers. So, they require Greece to sell off its public asset and impose austerity. Greece will be forced to increase its unemployment rate to 80% and double the emigration, in order for the ECB to make the loans to the government that will turn right around and pay off… the ECB!
The Troika’s demand was for austerity to be deepened solely by taxing labor and reducing pensions. Its policy makers vetoed Syriza’s proposed taxes to the wealthy, vetoed steps to stop their tax avoidance, and the IMF vetoed cutbacks in Greek military spending (far above the 2% of GDP demanded by NATO). And instead of doing what a central bank is supposed to do – provide liquidity to banks – as of July 1, ECB head Mario Draghi, as part of the ploy to frighten the voters leaning the NO, denied the Greek banks the emergency liquidity to which they are entitled as members of the Eurozone – that’s the EU solidarity! Tsipras was compelled to close the banks and set up capital controls, like restrictions capping the daily amount of money people can withdraw from ATMs.
A government having the power to issue a national currency of its own could cover the deficit by printing money. Greece central bank is not run by the Greek government, but by the ECB, as it is for all the countries in the Eurozone. The Maastricht Treaty clearly states that Eurozone governments cannot be funded by money creation by their own central banks. Money creation is a prerogative of the private banks and ECB. If states get into financial difficulties, they can get loans on conditions.
These regulations are the basis of the criminal system put in place by the EU to crush the poorest countries, and the Euro itself is the deception point – no wonder in 2011, the then Greek PM G. Papandreou was hounded out of office after announcing a referendum on the Euro.
In Germany the cost of borrowing is very low. Thus, German banks collect money from German taxpayers, then they use that money to buy Greek titles. Greece, though it’s a risky country, is charged a 15% interest rate. So, it happens that from a poor country massive resources get displaced to a rich one through the difference in interest rates. By this system, as the banks make whopping profits, the poor country starts up on impoverishment proceedings. When it is no longer able to pay its debt, EU aid arrives.
The subsequent bailout loans made available to Greece – a total of 240 billion Euro – were mainly used to pay off the interest to the French and German banks, and Greek people benefited from less than 10% of the amount.
Now the Greek banks cannot reopen without a resolution of the debt issue. ECB will provide no emergency support without a bailout in place, and Greece could be heading for default.
Three Part Story: