Why the powerful are punishing Greece

THE FLURRY of proposals, threats and counteroffers in negotiations over Greece's debts has obscured the question: Just who is responsible for Greece's economic collapse--and why are the rulers of Europe insisting on austerity measures that will only compound the enormous suffering in a country that has already seen its economy shrink by 25 percent in five years?

It's easy enough to point to this or that villain. There's the hardline German Finance Minister Wolfgang Schäuble, who relentlessly demands cuts in pensions and higher taxes on the impoverished working class; the haughty Jeroen Dijsselbloem, the Dutch Labor Party politician, finance minister and Eurogroup leader pushing anti-worker measures while posing as "progressive"; the duplicitous Barack Obama, who phoned Greek Prime Minister Alexis Tsipras to declare "the United States will stand to help Greek government to escape the politics of austerity," only to sic the Washington-dominated International Monetary Fund (IMF) on the left-wing SYRIZA government.

But Greece is in a vise not because of individual politicians or the free-market neoliberal dogma of bureaucrats. What's at play is a long-germ realignment of power relations in Europe, brought into the open by the Great Recession and its aftermath. The Greek debt crisis is a product of this new order--one in which Germany's economic dominance of Europe is expressing itself politically.

Yes, the money matters. But political power counts for more.

THE MORE honest European bankers acknowledge that debt repayment isn't really the issue in Greece. In January, Lorenzo Bini Smaghi, a former executive board member of the European Central Bank, one of Greece's main creditors, wrote that it shouldn't be difficult for Greece's $355 billion debt to be refinanced. After all, Smaghi pointed out, no government ever fully repays its debts. Instead, they pay off bonds by issuing new ones. "Overall, Greek debt has far fewer refinancing risks than Eurozone countries who need to issue billions of euros in the market every year," wrote Smaghi.

He should know: He took over as chair of the big French bank Société Générale a few months back. Moreover, Smaghi added, because most of Greece's $350 billion in debt is owed to European governments and institutions, it should be fairly simple for the debt to be restructured, as "Greece's debt appears to be more sustainable than that of several other countries" in Europe. Even the fact that Greece's debt is equivalent 175 percent of its Gross Domestic Product (GDP) shouldn't be an obstacle to refinancing its debt, wrote Smaghi.

The obvious ways to refinance the debt is one reason why Alexis Tsipras and Greek Finance Minister Yanis Varoufakis took office believing they could strike a deal with European authorities. By repackaging Greek debt, they could free up money to begin to reverse austerity policies. Surely the EU and the ECB would respect the mandate of Greek voters and allow the new government to address the suffering of the Greek people, 45 percent of whom live under the poverty line?

But even Tsipras' offer of major concessions on the country's value-added sales tax and cuts in pensions wasn't enough for Germany, the European institutions and the IMF. They want total surrender.

It isn't just the left that is aghast at this stance. This is from Bloomberg columnist Clive Crook: "What Europe is demanding of Greece can't be done--a government cannot credibly commit to do the politically impossible."

But that, in fact, is the point. The real problem with refinancing Greek debt, as the banker Smaghi explained, is that the Greek government wants to spend the money to revive its shattered economy. "This would entail the risk...of going back to the pre-crisis policies of rising public spending and giving up all the reforms that are needed to improve the competitiveness of the Greek economy so as to make it a lasting member of the monetary union," he wrote.

In other words, the pressure on Greece to capitulate isn't mainly about getting creditors repaid. It's not even about preventing a Greek exit from the Eurozone--the scenario known as "Grexit"--from destabilizing the European economy. Greece, after all, represents just 2 percent of overall GDP for the European Union (EU).

Rather, the power play in Greece is to drive home the idea that there is no alternative to the neoliberal program of cutbacks in social spending, attacks on trade union rights and labor legislation, and pro-business tax policies.

If Greece were to get away with resisting its creditors, it would inevitably give a boost to anti-austerity political forces--most notably Podemos in Spain. Further, governments in big countries like Italy and France, already pushed by anti-European right-wing populist parties, might also be encouraged to resist Germany's growing dominance of the EU.

German politicians like Finance Minster Schäuble and Chancellor Angela Merkel may be divided on whether and when to risk Grexit. But they agree that if Greece goes, the price must be so high that no country dare follow.

THIS ISN'T the first time that Greece has found itself a pivot point in European imperial politics. The struggle for Greek independence from the Ottoman Turkish Empire in the early 19th century captured the imagination of liberal and democratic forces around Europe. It was also highly convenient for the growing British Empire, which emerged as Greece's protector in order to secure its power in the Mediterranean.

A century later, the Balkans Wars and the First World War saw Greece dramatically expand its territory while the Ottoman Empire collapsed, including a mass exchange of population with the new Turkish state in a horrific war. By then a major force in shipping and with a merchant economy increasingly tied to Western Europe, Greece, still boosted by Britain, became a major regional military power through its rivalry with Turkey.

To secure Greece as a client state, banks in Britain and other European countries were willing to tolerate the fact that since independence in the 1830s, the Greek state was in default on its debts at least half the time.

In exchange for rolling over Greek debt again and again, they got an ally on the doorstep of the old Austro-Hungarian, Russian and Ottoman Empires--and, after the First World War, a stepping-stone into new colonial possessions in the Middle East. The greater imperial reach for the West was more than enough compensation for the loss of money. As historian Richard Clogg wrote, the territorial expansion of Greece in the 19th century was "the result not of irredentist agitation but Great Power mediation."

At the same time, Greece's economic development unleashed new social forces within the country. The Russian Revolution of 1917 had a huge impact on the growing Greek working class and nascent communist movement.

At the same time, a militaristic right wing, backed by the commercial oligarchy, pushed an aggressive nationalism that sought to expand Greece's role as a sub-imperial power in the region. In the 1930s, the polarization between left and right resulted in the fascist regime of General Metaxas, who brutally repressed the Greek Communist Party (KKE) and working class militants.

The following decade saw still greater suffering for the Greek working class when German Nazi forces occupied the country. Like the British, Adolf Hitler saw Greece as a strategic place for control of the Eastern Mediterranean. It was left to the KKE to lead a heroic guerrilla resistance against the Nazi occupation. Following the war, in 1946, the KKE, backed by Yugoslavia and the USSR, was the leading force in a civil war against right-wing royalist forces backed by Britain and the U.S.

THE GREEK Civil War of 1946-49 was a test of the U.S.'s new mastery of Europe.

President Harry Truman used the conflict to break Washington's wartime alliance with the USSR and launch the Cold War. The U.S. armed and financed the Greek royalists, who, in the aftermath of their victory, imposed a heavily religious, conservative and militarized political system, under which the KKE was banned. The U.S. likewise prized Greece for its strategic location and its anticommunist, pro-Western orientation as the Cold War intensified. In 1952, Greece became a member of the NATO alliance.

In the 1960s, there was pressure to liberalize society as a result of the growing urban working class and Greece's close connections to the U.S. and Western Europe through immigrant networks. The Greek military responded to increasing discontent and protests with a military coup in 1967.

The military regime based itself on the traditional middle class and the Orthodox Church hierarchy. "A different source of power was American support, which became obvious soon after the coup," wrote historian David Close. After the 1969 coup in Libya deprived the U.S. of its naval bases there, the Greek colonels provided Washington with similar facilities in Greece. "The junta also showed itself to be an enthusiastic ally in NATO by permitting more frequent military exercises on Greek soil," Close wrote.

A wave of popular struggles and working-class militancy toppled the dictatorship in 1974. The European Union stepped in to shape Greece's democratic transition, promoting the center-left PASOK, a social democratic party, to counter the influence of the KKE and the far left.

PASOK took over the government in 1981, the same year that Greece formally joined the EU. Also elected that year was French President François Mitterrand, who along with conservative German Chancellor Helmut Kohl, set in motion the policies that would lead to greater European integration. Greece, already a heavily militarized sub-imperial power tied to the U.S., would be brought into the European mainstream through social democratic political ties and an expanding EU bureaucracy.

Exactly 20 years after joining the EU, Greece became a member of the eurozone, the group of 19 countries that use a common currency. To do so, the government relied on the U.S. investment bank Goldman Sachs to cook the books.

As a member of the eurozone, the Greek government could borrow at the same interest rates as the biggest and richest European countries. European banks, including German ones, were happy to oblige, as this effectively financed the sale of German exports to Greece. Germany, having already lowered labor costs through harsh labor reforms, could also take advantage of the fact that the euro traded lower on currency markets than its old currency, the deutschmark, would have.

For several years, this setup appeared to work. Then came the recession of 2007 and the financial crash the following year, which exposed the fact that Greece's debts were unpayable. The so-called Troika--the EU, ECB and IMF--stepped in with successive bailouts of 2010 and 2012, each tied to a Memorandum that spelled out a series of austerity measures that must be imposed.

THE EFFECT of austerity was to strangle the Greek economy. This time, the Great Powers weren't willing to indulge Greece. The collapse of the USSR and the eastern expansion of NATO made Greece, from the standpoint of Washington, just another country in its stable of allies in the Balkans. In any case, the U.S., still coping with disasters in Afghanistan and Iraq, was less interested in propping up an old ally than aligning itself with European big powers in stabilizing the international financial system.

To that end, the first bailout loans were designed to "rescue the Greek and other European private banks, and to allow the banks to reduce their exposure to Greek government bonds," as a new Greek parliamentary investigation of the debt has shown.

But besides shoring up the banks, Germany was determined to use the crisis to lock in the new power structure in the EU. Greece, a favored ally given special treatment in the Cold War years for the sake of U.S. imperialism, was now to become a proving ground for a new imperialist setup dominated by Germany.

Rainer Rilling, a senior research fellow at the Rosa Luxemburg Foundation, explained the new dynamics:

"Germany Inc." is rapidly transnationalizing itself. Germany's export rate has almost doubled between 1991 and 2013, from 22.2 per cent to 40 per cent, and German direct investments abroad rose from 134 billion euros in 1991 to 1.2 trillion euros in 2012. In this process, the internationalization of German capital in recent years has led to continually more conspicuous advantages of power and position within the European power bloc--principally to the detriment of France.

But not just France. Germany's exports in 2014 produced a current account surplus--the value of the flow of all goods, services and finance--of 7.4 percent. That's a staggering figure for an advanced country, and it far outpaces that of China, the supposed workshop of the world. U.S. Treasury Secretary Jacob Lew has repeatedly pressured Germany to move away from exports and spend more on its domestic economy.

The German capitalist class isn't about to willingly back away from a model that has been so successful, however. Whether confronted at home by the biggest wave of strikes in years or challenged by SYRIZA in Greece, Germany will attempt to consolidate its power, even if it continues to camouflage its imperial ambitions behind the dull bureaucratic language of the European institutions.

Certainly, German imperialism is not comparable to that of the U.S. or even Russia or China. Its military strength, while considerable, is nevertheless constrained by its dependence on NATO and, in particular, the U.S., for any serious operations.

But in the case of Greece, no weapons were needed to devastate public health, destroy the future of millions of young people, and condemn millions more to poverty in their old age. All this was accomplished through Memorandums negotiated in posh hotels, even as austerity drove the Greek economy further downward.

That's why the election of the SYRIZA government was such a critical development not just for Greece, but for all of Europe and beyond. If a radical left-wing party can halt the drive to austerity, it will give a boost to the struggle for an alternative everywhere. Those are the stakes in the battle over Greece's future.