Greece is the word
Posted by John, February 8th, 2010 - under Debt, European Union, Government debt, Greece, Strikes.
The debt crisis in Greece has opened two fronts - one economic, the other industrial.
All across the industrialised world governments borrowed and spent more to stabilise capitalism in response to the global economic crisis.
This occurred at the same time as private capital and consumers cut back on debt.
The result was that public debt replaced private debt as the driver of growth in many of the industrialised countries.
The levels of Government debt are huge. According to the CIA Japan’s is almost 200% of GDP. Iceland’s is 100 percent, and Greece’s slightly higher.
Greece is part of the euro-zone. This meant it could borrow at low rates on the back of the German economic powerhouse. It did, partly to satisfy the demands of its workforce.
But because it is part of the euro-zone, Greece cannot devalue its now non-existent currency to reduce the debt burden and increase its export competitiveness.
Talk of sovereign default is growing. Now that the bankers suspect Greece cannot repay its debt, interest rates on its government debt are increasing.
The recently elected Papandreou Socialist government promised as part of its campaign that it would increase real wages. It cannot keep this promise.
The Greek Prime Minister will attack workers to pay for the crisis.
At the World Economic Forum Papandreou told the assembled ruling class elites that he would ‘draw blood’.
Conservatives are calling for consumption to be cut ten percent. The European Commission has told the ‘Socialist’ Government to cut the budget deficit markedly and to cut public service pay.
The Greek working class has responded by calling two strikes next week against attacks on them. This is a class prepared to fight back.
Papandreou is using this to pressure the EU to bail out Greece’s economy.
But Greece is not the only EU country with large debts and doubts about its ability to repay. Spain, Portugal and Italy are also getting more attention from the bankers and having their risks re-assessed.
Germany cannot support them all.
The situation in Greece, both economic and industrial, is on a knife edge. It has the potential to spread.
The crisis of capitalism is far from over.
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Comments
Comment from CrisisMaven
Time February 9, 2010 at 4:20 am
In and of itself a Greek bankruptcy or bond default should -in theory- not affect the Euro as such very much, Greece being maybe 3% of the total. However, just as a Californian bankruptcy (probably inevitable, large US cities at least are already contemplating insolvency, ten idividual states may well follow) would reflect badly on the “state of the Union” as a whole so would the default of on EU country, coupled with the rising interest rates and thus further destabilisation of the remaining over-leveraged member states, make investors wonder when sovereign default across the board is likely. Thus they wouldn’t commit themseves to bonds of longer maturity and that’s the beginning of the end.
Comment from Dave Bath
Time February 8, 2010 at 9:49 pm
Did you see Kaz’s cartoon on this in The Economist?
http://www.economist.com/daily/kallery/displaystory.cfm?story_id=15464363