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June 23, 2011

The Selling of Greece

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The Greek cabinet approved the austerity budget that the EU has laid down as a condition for more bailout funds to pay off creditors. This sets the stage for a vote in Parliament next week. Earlier, the Greek Prime Minister George Papandreou survived a vote of confidence by a 155-143 vote with his Socialist Party all supporting him, seen as a proxy for the budget vote.

So it looks like the Greek government will agree to crippling austerity measures as well as the selling off of state assets, just to get the cash to pay off the banks. European finance ministers are definitely raising dire alarms that defeat of the plan would trigger mass panic, contagion to other debt-ridden countries and perhaps the collapse of the euro. So the fear card is out and being played.

At the same time, the austerity budget will only free up EU money, and will not restructure Greek debt. EU ministers want banks to take a haircut on that debt, which they are resisting. But it’s unclear how they can manage to accept a haircut without credit rating agencies declaring a default, triggering the payoff of credit default swaps, insurance against such an action.

But these are very high-minded concerns, about banks and their money. Few observers are concerning themselves with the Greek people, and the loss of their national sovereignty in this exchange.

They are the crown jewels of Greeceā€™s socialist state, and they are now likely to go to the highest bidder: the ports of Piraeus and Thessaloniki; prime Mediterranean real estate; the national lottery; Greek Telecom; the postal bank and the national railway system.

And then comes the mandated deeper round of austerity measures, which will slash the wages of police officers, firefighters and other state workers who are protesting in Athens, and raise the taxes of citizens already inflamed by a recession-plagued economy and soaring joblessness [...]

To put that in perspective, spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion, considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit. And Greece has promised to generate another $72 billion by selling off prime state assets, which many Greeks consider a fire sale of national patrimony.

There’s also the question of what problem this austerity/privatization package will actually solve. Huge cuts like that will only depress the economy further, and we’ve seen that, in the midst of a recession, this only increases total debt. And forget about job growth. Most believe that Greece will eventually have to restructure or default anyway – the difference with accepting the plan is that the Greek people lose their national assets in the process. As one European economist says in the article, “The Greeks have been told to accept more of the medicine that has already failed to treat the disease.”

One thing is clear, the ruling party is done for in the next election in Greece. But in many ways that’s a minor point. Whatever government comes into power will find that they no longer run the state, at least not without a corporate partner.

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