Problems with the government debt of Greece threaten the European Union. The United States would most likely be drawn in if the financial crisis gets big enough.
By Arthur Henson
October 2, 2011
The Greek predicament exposes root problems of capitalism. Production is a highly organized process. It embraces the whole of society. Yet the means of production are privately owned. The aim is profit. There is no overall plan of development. Production leaps ahead here and falls apart there; it is uneven. The outcome is frequent crisis. The Greeks have a word for it – chaos.
The European Union is really no more than a zone with a common currency, the euro. The main motive for the euro zone, which was set up among 11 countries in 1999, was to allow advantages to Germany and France in export trade. Highly developed Germany saw its exports zoom from $610 billion in 1999 to $1,498 billion in 2008. In that year Germany was the world’s largest exporter, according to the CIA’s World Factbook.
Growth of GDP, adjusted for inflation, was much less impressive. It averaged less than 2% per year over the same period. The economy of France followed a similar pattern. The problem is characteristic of monopoly capitalism. Industry is highly developed yet vast numbers of people are deprived of the benefits due to the demands of profit. Hence consumer demand lags behind. It becomes hard to expand production despite large profits from export sales. Large amounts of capital are exported in the attempt to deal with the problem.
A lot of exported capital ended up in Greece through purchase of government bonds. Government debt for Greece ran around 100% of gross domestic product from 1999 through 2007. The euro zone average in the same period was much lower, around 65-70% of GDP. A significant amount of the bond money went to a large government employment sector, around one fifth of total Greek employment, and other human needs.
It worked well enough for a while. Still the downside of the euro zone all along is that it worsens the conditions of uneven development. Other small countries suffered problems like real estate bubbles. Even medium-size countries, including Spain and Italy, face difficulties.
The media call Greece “indulgent” because of its debt. It is blamed for “failure to reform labor markets to be more competitive with Germany,” and nonsense like that. Again, the Greek have a word for it – hypocrisy.
The U.S. financial collapse of 2008 hit the euro zone hard, and threw it into crisis. The shrinkage of the Greece economy led to even more borrowing but with less means to repay. Government debt zoomed to 142.8% of GDP as of 2010. At this point there is considerable danger that Greece will default on its debt payments.
A Greek default would have a falling-dominoes effect. Finance in all developed capitalist countries has become an affair of buying and selling financial properties at a frantic pace, accompanied by equally frantic borrowing and lending to keep all the bets covered.
Take Societe Generale, a big French bank, for instance. It is heavily exposed to Greek debt. Default would mean Societe Generale comes up short on expected returns from Greek bonds. It would then face defaults to its own creditors. In turn the SG creditors would face problems with their creditors, and so on.
Financial markets have been fragile for decades. The present is not good times. U.S. and E.U. finances are tightly interwoven. A big euro zone crisis would spread to the U.S. financial system, just as the 2008 U.S. crisis spread to Europe.
The European Central Bank, the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank are cooperating to resolve short-range problems. A euro zone plan to set up a 440 billion euro bailout fund ($611 billion) was set up in July but has must be ratified by 17 member countries to take effect. There are no guarantees any of it will work. Robert Zoellick, head of the World Bank, had to ‘fess up’: “It is not responsible for the euro zone to pledge fealty to a monetary union without facing up to either a fiscal union that would make monetary union workable or accepting the consequences for uncompetitive, debt-burdened members.”
The euro zone problems reveal that it is impossible under capitalism to eliminate uneven development. Some have, some don’t, and those that have cannot split the difference.
The Greek people have been struck by a savage austerity policy of higher taxes along with losses in employment, services and pensions. The money taken from the people will go toward the bonds – but even then it will not end the crisis.
The Greek people aren’t having it. Huge protests have rocked the country for months. Let the capitalists beware. The people will never agree to be the fall guys for the contradictions of capitalism. The deeper the crisis becomes the more they will fight back.