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A Milestone or a Millstone? Greece Reenters the Bond Markets

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A Milestone or a Millstone? Greece Reenters the Bond Markets



Robert Zaller


The New York Times’ headline read: “A Milestone As Greece Dives Back Into Bonds” (April 10, 2014). This is supposed to be good news?


Greece was frozen out of capital markets in 2010 when its economy was taken hostage by the gang of thieves called the Troika—the European Central Bank, the European Commission, and the International Monetary Fund. These three entities usurped Greek sovereignty, collapsed the Greek economy by a quarter, raised unemployment rates to nearly 30%, and cut wages and benefits for almost everyone while raising taxation to unprecedented levels. The result was a forced suffering imposed on an entire nation on a scale not seen since World War II. Back then, it was called the Occupation. This time, they called it austerity. The result was the same.


The Greek launch was pronounced a great success: an offering of 3 billion euros in five-year bonds attracted 20 billion euros In bids. Why, you might wonder, would Europe’s most battered economy attract a feeding frenzy from investors? The answer, of course, is profit: even at a knocked- down 4.75% rate of return, Greek bonds yield three times as much as German ones.


What gave the Greek government the green light was a reported budget surplus of 2.5 billion euros, squeezed out of five years of contraction. This money isn’t available to the Greeks from whom it was extracted, but is earmarked for payment on the mountain of Greece’s public debt—some 240 billion euros—they continue to shoulder. So, why would the government want to add yet further debt, and at premium rates? The answer, of course, is to satisfy existing creditors. It is part of the vicious cycle of debt slavery into which Greece was forced by the Troika, in which imposed “loans” to satisfy foreign creditors only stoked the debt higher. In short, having been driven into de facto bankruptcy by the Troika, Greece borrowed—on terms dictated by the lenders—in order to keep it from reaping the benefits of a default.


It can’t be said often or emphatically enough that what has been done to Greece in the past five years by its European paymasters is a crime that borders on economic and social genocide. It is a crime, moreover, for which only the victims have been prosecuted. When the then-head of the IMF, Christine Lagarde (who has since been caught up in personal scandals of her own), was asked about the effect of austerity on Greek society, she replied, “I weep for the children of Nigeria.” The message, if stunning in its cruelty and arrogance, was clear: Europe’s bankers would not be satisfied until Greece had been reduced to the level of West Africa.


The Times was so delighted by Greece’s reentry into the international financial circus that it devoted an editorial to it (“For Greece, a Sign of Stability,” April 11), in which Prime Minister Andonis Samaras was quoted as saying that the opening of the bond market was an indication of “trust in the Greek economy.” Of course, as the Times’ own correspondents point out, it is no such thing. Rather, they say that international investors, “hungry for profit” in a world economy beset by low interest rates, flocked to Greek debt despite adverse indicators.


Why, though, would investors be so eager to take on risk? The answer lies only partly in the killing to be made on short-term Greek bonds and those of other devastated Mediterranean economies. The more important element is the assurance of Mario Draghi, President of the European Central Bank, that he would do “whatever it takes” to assure continuing liquidity. That, however, raises yet another question: Why would Draghi make such a commitment on such a bad bet, especially with overall European Union unemployment still at depression levels and a deflationary spiral looming?


The answer in this case must be political, certainly as it applies to Greece. The popular reaction to the bond offer was summed up by the car bomb that exploded outside the Greek Central Bank in Athens shortly after its announcement, as well as in the bitter graffiti that have lately sprung up all over town. The public knows that the bond sale is just another way to sell the country’s future down the river.


This smoldering disaffection makes it all the more important to shore up the Samaras government, which will finally face an election next year and is desperate to point to any sign of economic recovery. The bond sale is only a swapping of new debt for old; it will do nothing to alleviate the country’s misery. But it will, it’s hoped, help to prop up the despised Samaras and his minions. Just as currency manipulation by the Federal Reserve Bank (and the huge corporate profits it underwrites) is touted as prosperity on this side of the Atlantic while incomes fall, pension funds collapse, and cities go bankrupt, so smiling investors are being trotted out to distract attention from hungry babies in Greece. Let’s weep for the children of Nigeria indeed.


Will it work? If Samaras can’t be salvaged, the goal is at least to neuter the opposition leader, Alexis Tsipras of the Coalition of the Radical Left (SYRIZA). Tsipras has already muted the populist note he struck at the beginning of the Greek crisis, and Brussels has reasonable confidence he can be managed if he comes to power. Still, Samaras is the proven quantity it prefers. He will, it may be expected, get further tidbits of favor in the runup to the election. What his country won’t get is relief from the appalling suffering it has endured to keep bankers in champagne.


The Greek crisis is a classic example of what legal scholars call ‘odious debt’—a debt incurred by despotic power or corrupt elites to the detriment of the national interest, but which the public at large is called upon to bear. Many Third World economies have been shattered in this fashion, or reduced to servitude. The European Union has introduced this practice on a wide scale in the vulnerable states on its periphery. The question is whether the turpitude of a minority induced or abetted by predatory lenders, can justify driving an entire population that has reaped no true benefit into penury.


Beyond this, it is a question whether renewed capital inflows in a country savaged by debt recovery can have a positive impact, even if directed toward constructive purposes. As James K. Galbraith has observed, “You can’t make a country attractive to foreign investment in a manner that will produce economic recovery if [the] social underpinnings are destroyed.” This is a tolerably accurate description of the state to which Greece has been reduced. There is no confidence in core political, financial, and civic institutions; there is no sense of shared purpose and common interest. No country can be more justifiably proud of its heritage than Greece. In none has that heritage been more abused and degraded. The country’s return to the bond markets is no cause for even the most measured celebration. Under the circumstances, it merely adds insult to injury.


Image from businessinsider.com









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