Saving the euro at workers’ expense

THE EURO will survive for now--but only because working people in Greece and other European countries face greater suffering.

That's the not-so-hidden agenda behind the new $227 billion bailout of Greece organized by most powerful countries of the European Union, mainly by France and Germany.

In the weeks before the July 21 emergency meeting where the deal was announced, the common currency of 12 European countries seemed on the brink of collapse under the weight of the ever-widening debt crisis in Greece and other European countries. The rescue--which comes little more than a year after an earlier $155 billion rescue that was supposed to stop the debt crisis--has dispelled such apocalyptic scenarios.

But less discussed in the media is the grim fact that the deal is contingent on even greater austerity measures in Greece, where workers have struggled for months against cuts in social spending, higher taxes and growing unemployment.

"To secure the fresh funds promised by the eurozone last week, the Greek government has had to commit to years of strict austerity," wrote Financial Times columnist Gideon Rachman. "The country's future seems to promise blood, sweat and tear gas."

But as with the previous bailout, the money isn't really intended for Greece, but rather for the bankers who hold Greek government bonds.

Thanks to a guarantee by European governments, bankers who choose to contribute to a "voluntary" debt restructuring for Greece will get 69 cents on the dollar of their holdings of bonds. That's a loss, but it's vastly better than the 20 or so cents on the dollar that the banks would get if Greece out-and-out defaulted.

Instead, Greece has carried out a "selective default," meaning that its creditors will roll over its old loans to new ones at much lower interest rates--3.5 percent--to be repaid over 15 or 30 years. European governments will provide collateral on those loans via the European Central Bank (ECB).

The European Financial Stability Fund (EFSF), created last year to organize the bailouts of Greece as well as Portugal and Ireland, will use the $632 billion at its disposal not only to make new loans, but also to buy government bonds and recapitalize European banks. Portugal and Ireland will also have access to the 3.5 percent interest rates on government bonds.

That's a lot of money--but it isn't enough to pay back Greece's debts, much less alleviate the suffering of workers. Greece's current debt is more than $500 billion, a crushing burden for a country of just 12 million people. The lower-interest loans will reduce that amount by only $38 billion--just 8 percent. As a result, Greece's debt would remain above 150 percent of gross domestic product (GDP)--higher than even the most pessimistic estimates made a year ago.

Given the limited relief in this latest bailout, there's no conceivable way that Greece will be able to repay that debt. "This was no doubt a compromise that works politically," wrote economist Wolfgang Münchau. "But it comes at the expense of debt sustainability. Even before the ink on this second package is dry, a third Greek package beckons."

In fact, the main benefits of the plan go to the banks that hold Greek government bonds, as Alexander Gloy of Lighthouse Investment Management noted:
"What a joke. While Greece does not benefit materially, banks can exchange their bad holdings for new bonds guaranteed by the European taxpayer."

EUROPEAN OFFICIALS blame Greek workers--and workers across the continent--for "living beyond their means." In fact, the roots of this crisis was an easy-money lending spree by big banks since the creation of the euro in 1999.

The banks were able to treat, for example, a Greek or Irish government bond the same as a German one, and they were able to hold far less capital in reserve than they would have if Greece had remained outside the eurozone. This, in turn, enabled them to dramatically expand lending in relation to the money they had on hand.

When the bubble burst in 2007-2008, the banks had to be rescued by national governments, with tiny Greece and Ireland giving guarantees to huge financial institutions. The result was an explosion of government debt. Then the same banks that had been bailed out demanded that governments repay that crushing debt in full. The so-called "peripheral" economies were the first to feel the crunch.

To keep the eurozone from unraveling completely, the two countries that dominate it, France and Germany, have now twice overcome their disagreements to bail out Greece.

This time, by giving Greece just a bit more breathing room, German Chancellor Angela Merkel and French President Nicholas Sarkozy--and the bankers whose interests they serve--hope that Greece will be able to stagger forward, making debt payments and avoiding the financial domino effect of an out-and-out default. Foreign investors will move in to grab whatever they can in a fire sale of Greek government assets, which is expected under the terms of the latest bailout.

Meanwhile, the newly empowered EFSF will, according to Sarkozy, act as a European version of the International Monetary Fund (IMF), making loans to heavily indebted countries to forestall a crisis--as long as they agree to conform to the austerity agenda.

But even if Greece manages to push through still more attacks on workers--no sure thing, given the scale of mass resistance in that country--the debt crisis threatens to bring down other countries as well.

In the days prior to the July 21 European summit that came up with the latest Greek bailout, Italy and even France were under fire from investors worried about those government's ability to repay their debts. As a result, interest rates on Italian and French bonds--the equivalent of Treasury bonds in the U.S.--jumped sharply. Panicked, the Italian government pushed through an austerity budget in record time.

As for Germany, as Geoffrey Smith of the Wall Street Journal wrote:

Germany is no more responsible for Italy's and Spain's debts than it is for Greece's. More importantly, Germany doesn't have resources to write a check for Italy and Spain even if it wanted to. At most, with its debt burden already over 83 percent of GDP, Germany has the resources to recapitalize its own banks after a Southern European meltdown.

ALL THIS highlights a fundamental problem with the European rescue plans--the countries that fork over money to provide loans and collateral for Greece are themselves on shaky ground--certainly in relation to the scale of the bailouts. As financial trader and author Satyajit Das wrote before the latest Greek bailout:

[T]he reliance on Euro-zone members guaranteeing each other is problematic. Some of the guarantors are themselves are vulnerable with the real and contingent liabilities...In reality, an EU support mechanism of something the order of 1.5-2.0 trillion euros [$2-2.9 trillion] would be needed to ensure a credible ability to bailout the embattled economies.

Even if that sum was economically feasible--which is a stretch--raising that amount of money would likely be politically impossible, considering that Europe has a central bank, but no central treasury or fiscal policy.

As the euro crisis drags on, many are calling for just such a solution. But Germany--which would have to pick up the tab for much of such an effort--is unwilling to do so, and other countries are reluctant to surrender economic control to Germany.

Rather than a comprehensive and decisive solution to the euro mess, the second Greek bailout is another effort to kick the can down the road and hope that economic recovery provides an eventual solution.

A more likely scenario, though, is a new crisis in other debt-burdened eurozone countries. As the Financial Times noted, "A broadening of the eurozone debt crisis to other, larger, countries such as Italy or Spain, would exhaust funds available to the European financial stability facility, the EU's bail-out mechanism, which is due to provide much of the external help to Greece."

Austerity is already strangling growth in Greece as wages are cut, consumer demand plummets and investment dries up. There's no reason to believe that the latest squeeze on Greece--and similar programs in Portugal, Ireland, Spain and elsewhere--will fuel a recovery.

And if the debt crisis breaks out anew in Greece or some other country, European banks--and some U.S. ones--which haven't yet fully acknowledged losses from the Greece troubles will find themselves in need of yet another rescue. But a bailout of banks hit by a Greek default would stretch the European financial system to the breaking point.

In other words, the euro crisis is far from over. The weak economy means that debt burdens in the so-called PIIGS--Portugal, Italy, Ireland, Greece and Spain--will all likely grow relative to GDP.

WITH THE day of reckoning for the euro postponed for now, European governments will get on with the business of hammering the working class, wiping out decades of economic and social gains at breakneck speed.

In Greece, it's unelected bureaucrats from the ECB, European Union and IMF dictating the terms--the center-left PASOK government simply rubber-stamps their edicts.

BBC News recently provided a grim summary of the Euro-austerity campaign prior to the latest Greek bailout. Greece will be hit with $9.4 billion in tax increases between 2011 and 2014, including the value-added tax, along with a 15 percent cut in public-sector wages and a 30 percent pay cut for workers in state-owned enterprises. With unemployment already at 15.8 percent, the suffering will only grow.

Portugal, too, has been hit with an austerity program in exchange for its $112 billion bailout last year. This includes an increase in the value-added tax, reducing workers' purchasing power, and cuts in a range of social services. Ireland, which got a $122 billion bailout a year ago, is cutting its budget by $8 billion--a huge sum in a country of only 4.6 million people.

Spain, where unemployment has doubled to 21 percent since the recession, is on track to cut its budget by 8 percent. Italy has cut $100 billion from its budget, in part by targeting health care and family tax benefits.

And the austerity drive isn't confined to the eurozone--Britain is carrying out its biggest wave of cutbacks since the Second World War, aiming to eliminate 490,000 public sector jobs.

Bankers and corporations across Europe are demanding a sharp reduction in social spending and a transfer of wealth to capital to help them to survive the crisis. Thus, both conservative and social democratic governments are carrying out the same program of cuts, cuts and more cuts. If democracy gets in the way, then conditions will simply be imposed by an anonymous group of officials.

These relentless attacks have provoked the largest wave of resistance among European workers in decades. A strike movement swept France in late 2010, involving wider groups of workers than the famous general strike of 1968. General strikes have taken place in Portugal and Spain, marking the largest worker mobilizations in decades. Greek workers carried out a series of general strikes involving both public- and private-sector workers.

In Spain, the initiative has also passed to young people--the "indignants" who, inspired by the Egyptian revolutionaries of Tahrir Square, occupied the main plaza in Madrid and cities around the country. That, in turn, set an example for Greek protesters, who occupied Syntagma Square outside the parliament building in the days prior to the government vote on austerity measures in late June.

These struggles weren't successful in stopping the austerity drive. The ruling classes of Europe have made it clear that it will take a much greater level of working-class resistance to defeat these attacks.

But that lesson is being absorbed by working people across the continent--both by veteran unionists and activists and those new to politics, especially young people. As the attacks intensify, the potential for a bigger and more radical fightback has grown.