Grasping for the Thread: Greece and the Ongoing Global Crisis

In May 2010, following negotiations with the IMF and the European Commission, the Greek government agreed on a loan package worth EUR 110 billion over the next three years (EUR 80 billion from the EU and EUR 30 billion from the IMF), in exchange for a EUR 30 billion austerity program. The so-called “adjustment program” is aimed at eliminating primary governmental deficit via reduction of the public sector wage bill, cuts in social benefits and increases in value added taxes (together with a range of structural changes to the labor market, social security etc). In this article I do not examine the assumptions of the IMF and EU program, which seem highly unrealistic – for example, projected growth of 1,1 percent in 2012, or a primary budget surplus of 6 percent of GDP in 2014.1 Instead, I shall focus on the economic philosophy of the program and on some less obvious connections between the global crisis and the Greek economy.

Institutional framework and the creation of “free markets”

There are many reasons why it is worth studying the austerity program currently being implemented by the Greek government in collaboration with the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF). The program may be seen not only as a turning point in the way the EU approaches the global economic crisis and as an indication of how the crisis is deepening, but also as a measure of how modern political institutions work, and of just how bankrupt political democracy in European societies now is. The Greek problem, for all its many unique internal configurations, is also a European problem. It sheds light on how the EU has moved forward since the Maastricht Treaty (1992) and the creation of the Eurozone in 1999, while also reflecting the antinomies of the common market and the asymmetries of European integration.

The incumbent political and economic leadership in Greece defends the austerity measures by invoking the “realities” of modern capitalism. We live, they say, in the world of mobile capital, a world in which markets, not governments, have the upper hand, and we cannot do anything to change that. Our world is interdependent and governments cannot punish capital -or capitalists- because if they do, then capital will move around the globe in search of better opportunities, reducing those uncooperative to poverty. As capital is global, they argue, so we must have global governance. And as the economy is regulated by market forces and profit, so people must leave economic decision making not to political agents elected by majorities, but to market agents.

However, “free” or “united” markets only exist because people decided to create them. They are political constructions, not economic or natural necessities. And mobile capital functions as it does because states have decided to forfeit their right to control it, and have handed over the regulation of economic affairs to supranational institutions. If we approach the philosophy of modern economic and political institutions, it is easy to apprehend this “market fanaticism”. The ECB, linchpin of contemporary European economic leadership, was established on the basis of two clear-cut political and ideological beliefs: firstly, that the best central bank policy consists in adherence to strict anti-inflationist rules2; and secondly, that the economy ought to be regulated to the least possible extent, following the implementation of aggressively market-oriented imperatives to be “open”, “competitive”, “transparent” and “flexible”. The Single Market Program, passed in a series of 264 European Council directives in the late 1980s and early 1990s, was a clear indication of this gung-ho approach to the regulation of property rights, competition, control over the flow of goods and services, the removal of customs barriers etc.3 At the core of the arrangements lay the belief that modern capitalism was no longer susceptible to a 1930s type deep structural crisis. The phantom of 1929 had been replaced by the certainties of 1989.

It is no mere coincidence that the 2004 European Union constitution – rejected by many European countries, including France – declared that: “The primary objective of the European System of Central Banks shall be to maintain price stability” and that the economic policy of the member states ought to be “conducted in accordance with the principle of an open market”. The text reflected a certainty that European economies did not produce any fundamental “imbalances” or, at least, that these imbalances could not undermine the kingdom of “open market economies with free competition”. The proposed constitution allowed a member state “where a sudden crisis in the balance of payments occurs” to “take the necessary protective measures.” But “such measures… must not be wider in scope than is strictly necessary to remedy the sudden difficulties which have arisen”. Indeed, the text only contained one reference to the target of “full employment” and to citizens’ “entitlement to social security benefits and social services…” Before that went the exposition of the basic principles behind the EU, i.e. “balanced economic growth and price stability” and “a highly competitive social market economy…”4 The Treaty of Lisbon (13-12-2007) wrought no substantial changes to those provisions.

Before the present financial crisis became a public debt crisis, participation in the Economic and Monetary Union (EMU) may have “contributed to the lack of full awareness of the problem [of increasing current account deficits] as it removed…concerns about the financing of external debt”. Indeed, an important by-product of the Eurozone was that by reducing the cost of financing current account deficits, it allowed countries such as Greece, Portugal and Spain to vastly increase such deficits. For instance, Greece’s deficit climbed from 5 percent of GDP in 1999 to 14.4 percent in 2008. Admitting the country to the EMU deprived monetary authorities of the exchange rate policy as a mechanism for alleviating “external imbalances”. In the meantime, increases in crude oil prices – Greece is heavily energy dependent – and the relative poor inflow of direct foreign investment “implies that the financing of the external imbalance has been increasingly taken up by external borrowing.”5 Additionally, declining competitiveness exacerbated the current account deficit after EMU entry, driven mainly by the enhanced profit margins of Greek industries. These were brought about by excessive price increases, which “led to import substitution, as domestic producers became less competitive relative to foreign producers”-, as well as by major purchases of ships by Greek ship-owners, and an increasing export of incomes, in the form of interest and dividends, as a result of the higher participation of foreign firms in the Greek market. The drop in interest rates that occurred after the country entered the common currency area, coupled with a rise in domestic consumption driven by credit expansion, meant that a larger sum of internal savings – far greater than the European Union average- was directed via banks to the household and shipping sectors.6

Decreased transaction costs following the introduction of the Euro facilitated direct foreign investment between member countries and access to the market “for higher-risk issuers”.7 The deregulation of credit and capital markets which took place in the late 1980s and 90s, involving interest rate deregulation, liberalization of cross-border capital movement and the abolition of direct credit controls, enhanced profit opportunities for many Greek credit and industrial corporations, especially after the enlargement of the EU into Southeast Europe and the opening up of neighboring Balkan markets.8 Banking groups such as the National Bank of Greece, Marfin Financial Group, Eurobank, Alpha Bank, Piraeus Bank, and industrial corporations like Viohalco (metal production), Titan (the larger cement producer in the Balkans), Vivartia (food production), Mytilineos (metal and energy production), Coca-Cola 3E (the largest producer of fresh juices in the Balkans), Intracom (telecommunications, information, defense etc) invested heavily in the Balkans.9 In 2006, Greek banking, commercial and industrial capital accounted for “27 percent of the total of direct foreign investment in Albania”, was ranked first in foreign investment in Macedonia, second in Bulgaria, fifth in Romania and invested billions of euros in Bosnia-Herzegovina and Serbia-Montenegro. These investments required the involvement of Greek banks through subsidiaries operating in the region; this was achieved via the acquisition of local banks, or through the collaboration of multilateral financial institutions.10

At a meeting held in Vienna in January 2009, the EU and the IMF agreed with European banks involved in Southeastern Europe to provide financial help to Latvia, Romania, Serbia, Bosnia, Hungary and other countries facing serious balance of payments problems, and to enhance liquidity in Western banks with large-scale operations in the region, in exchange for promises by those banks that they would not withdraw capital from their subsidiaries in the region [the so-called “Vienna Initiative”]. At another meeting held in Vienna in late February 2010, ten European banks with major involvement in Serbia, including three Greek groups (the National Bank of Greece, Alpha Bank and Piraeus Bank), reaffirmed their commitment to support their subsidiaries in Serbia.11 These agreements were to prevent countries already hit by the recession and highly indebted to foreign banks from experiencing a sudden outflow of capital, in exchange for “stabilization programs” supported by the IMF. According to Anne-Marie Gulde, senior advisor in the IMF’s European Department, the Fund’s heavy involvement in the region was aimed at rescuing major Western banks in order “to avert a systemic crisis, even with the loans provided by the IMF, the European Union, and other multilateral and bilateral lenders”.12 Greek banks, which had previously been reluctant to use the EUR 28 billion provided under governmental “support measures”, designed in September 2008 “to ensure the stability of the Greek financial system”, that is, to rescue banks from dangers of a run on their deposits, were now eager to use not only the initial EUR 28 billion package, but to increase support schemes to EUR 43 billion. Indeed, after the debt crisis erupted, triggering a deterioration in both public and private sector loan terms, the collapse of interbank lending and the withdrawal of deposits in excess of EUR 15 billion, in April 2010 Greek banks formally requested that the Ministry of Finance increase the state guarantee package. According to the European Commission, the additional liquidity was necessary because Greek banks were “facing liquidity constraints… maturing interbank liabilities have not been renewed” and “have increasingly relied on Eurosystem credit operations”.13

 It is difficult to ascertain how much of this state aid was directed to Greek bank affiliates in the Balkans. The foreign network of Greek banks, one of the strong points of Greek banking capital prior to 2008 – accounting for more than 3.000 branches worldwide, local deposits worth EUR 37.8 billion and total assets of EUR 87.6 billion – is now most definitely a source of inquietude, if not of direct losses. As Balkan countries dive ever deeper into recession, banking institutions in Greece are eager to secure new state aid. Yet, it comes as a shock to note that at the very same time, the recently elected (October 2010) government headed by G. Papandreou has slashed wages in the public sector, imposed a three year wage freeze on the private sector and cut state aid to several public utilities in order to “save the country from bankruptcy”. Nevertheless, it appears willing to support the banking system to the tune of 43 billion Euros, a sum unprecedented when compared to the size of the Greek economy –in fact, the bank aid package equals the amount the country pays annually to bondholders for interest and amortization.14 In this respect, it would not be unfair to assume that one of the main targets of the current Greek austerity measures and the joint EU-IMF “rescue package” is to provide an attractive financial environment and adequate resources to cover Greek banking exposure in the Balkans.

Inflation targeting and the euro-area debt market

After the 1980s, mainstream economists generally agreed on the following: that the social costs of inflation outweighed the social cost of unemployment; that Central Banks should be “independent” so as to be able to refuse requests to finance budget deficits; that it is crucial for governments to be committed to low inflation targets, so as to convince the public of their determination to reduce inflation; that the postwar commitment to full employment was a false economic philosophy, leading to unbalanced budgets and increased governmental regulation; that the “Great Inflation”, i.e. the period from 1967 to 1983, when inflation rates in the USA did not fall below 3 percent, reaching a climax of 12 percent, was as bad as the 1930s Great Depression; lastly, that Reaganomics and Paul Volker leadership in the Federal Reserve System changed this course for the better and established a regime of low inflation rates via the control of money growth.15 This highly biased narrative usually omits any reference to “the fundamental cause of both of the “twin evils” of higher unemployment and higher inflation”, that is, “the “significant decline in the rate of profit in all major capitalist countries in the 1960s and 1970s”.16

The public, and certainly modern politicians, became committed to the war against inflation, even if that meant allowing unemployment rates to exceed 10 percent. The consequences of such policies were severe. Restrictions on public lending via the control of money growth – allegedly a machine producing money and inflation17– and central banking independency left two alternatives open. The first was the support of balanced budget and reduced public spending; in mature capitalist societies with booming services sectors, this lead to significant “social deficits”. State ownership had previously been used as a redistribution tool to provide health care, education, water, energy or transport services for the poorer segments of the population. Now, who was to provide these services without large state investments or unbalanced budgets? Under favorable circumstances (i.e. with the free use of the large public infrastructure and network), private agencies could do so. Yet new, promising investment opportunities for private capital went hand in hand with growing social inequalities. In a progressive tax system, the welfare state was funded by the richest taxpayers. Now, those taxpayers benefited from “privatization programs” and efforts to limit the size of government at the expense of the underprivileged. The benefits of low inflation for consumers were outweighed by a loss in employment and the high costs paid to the owners of private utilities.

This train of events proved incompatible with the notions of sustained growth and social cohesion. Politicians and economists who accepted the philosophy of the “minimum state” were also aware that deregulation and privatization could not proceed without social unrest. They thus accepted the necessity of running public deficits in one form or another –either to support “national security”, expenditure on armaments and foreign wars, or to finance a large trade deficit – the last being a tribute to the priorities of multilateral corporations. The way in which public debt is financed is crucial. The best way, according to neo-liberal economists, is not by public paper money creation but by credit provided by private or “independent” banking institutions.

The creation of the Eurozone, which Greece entered in 2001, contributed to the “integration” of the European security market and to an increase in the securities issued by private and public agents. The “euro-area public debt market” was as large as the US Treasury market. But unlike the US, the issuance of public debt in the euro area remained a decentralized process, involving less favorable terms for the debt instruments of smaller-euro-area issuers who had to pay a “liquidity premium” in order to have access to European financial markets. The “Giovannini Group” was formed in 1996 to advise the European Commission on issues relating to EU financial integration; in November 2000 it published a report arguing for more “efficient” and “coordinated” government bond issuance among euro-area member states. The report recommended the creation of “a more homogenous public debt market that would…help to ease liquidity constraints, particularly for smaller issuers.” The Group proposed “not only common issuance terms and conditions but also a joint debt instrument underpinned by the several guarantees of the participants”, aimed at improving the liquidity of euro-area public debt and reducing the yield spreads of smaller member states.18 Nevertheless, nothing substantial was done in this direction.

From the late 1990s on, governments reduced their supply of securities as their economies improved. Coupled with new incentives provided by the euro-area to private bond issuers, this led to an increase in securities issued by the private sector, and a decrease in the percentage of government bonds in financial markets. Many corporate firms, like the US Freddie Mac Federal Mortgage Agency and the Fannie Mae Mortgage Company (privatized in 1968), or the German Pfandbrief Banks, issued multi-currency bonds in a manner similar to the borrowing practice of governments. Private debt markets grew substantially after the introduction of the euro, thus facilitating the development of derivatives and repo markets.19

The Eurozone became an attractive area for private entities to raise funds by issuing debt securities. Between 1999 and 2006, the nominal amount of debt security increased worldwide from $34.2 billion to $67.7 billion. In a continuous upward trend from 2000 onwards, the Euro increased its share of all debt securities as a debt denominated currency from 22 percent in 1999 to 27 percent in 2007 (the USD accounts for 43 percent and the Yen for 14 percent). The Euro’s popularity in international capital markets was due in no small part to the ECB’s “hard money” policy, which led to significant appreciation against the dollar and the Japanese yen. The share of euro-denominated securities for non-euro area states and corporations went up from 21 percent in 1999 to 31 percent in 2006. And although debt securities issued by public authorities are still the most important segment of the market in the Eurozone, the share of government debt has been decreasing since 1999. From 75 percent of all debt securities in 1999, it stood at 47 percent in 2006. The Stability and Growth Pact, adopted in 1997 to enforce budgetary discipline by the Euro member states, was not only intended to reassure European bankers that inflation targets would not be evaded by any member state, but also to make it more attractive for private financial institutions worldwide to raise funds in the Euro through the issuance of debt securities. Indeed, the outstanding amount of Euro-denominated debt securities issued by non-Euro area banking and credit institutions -the so-called Monetary Financial Institutions (MFIs) – increased by 579 percent between 1999 and 2006.20

At the same time, households were becoming heavily indebted to banking institutions and were forced to cover their needs by submitting to onerous terms, due to the gradual disintegration of the welfare state. The main problem arising from the current financial environment is not large state indebtedness, but predominantly huge private debt, both corporate and individual, and the enormous growth of capital markets.

Privatization and “Militarization”: a destructive co-existence

The rise in worldwide military spending over the past 12 years is yet another factor which triggered the global financial crisis, and which is also a component of the Greek debt crisis. This trend is not necessarily a by-product of the so-called “war on terror” and the USA invasion of Afghanistan and Iraq, since it was already in train prior to September 11, 2001. In 1998 the US Department of Defense budget reached a post-Cold War low point of $361.5 billion (calculated in 2010 USD). Yet ten years later, in 2008 the USA was responsible for 41.5 percent of global military expenditure, with a budget in the order of $696.5 billion. I am not aware whether this 92.7 percent increase is linked to the introduction of the Euro, but the fact remains that the rise in US “defense” spending “has no precedent in all the years since the Korean war”. The pro-person cost of US commitments in Iraq and Afghanistan is three times that of the Vietnam War. Τhe transition from a conscript to a professional army, increasing operation and maintenance costs, and the changing ratio between “shooters” and support personnel and activities, in favor of support, contributed to the post-1998 rise in defense spending. From another point of view, the US Department of Defense has increased its dependence on private, contract labor. Private defense contractors constitute a far larger share of the US military budget than in the past. This “privatization” of the army, a general trend from public to private personnel that is observable not only in the army but in a whole range of services and activities worldwide, does not necessarily involves lower cost, if we take into consideration that “only 40 percent of Pentagon contracts were conducted under what it terms “full and open competition.””21

The redistribution of tax money to armaments and defense related programs was not compensated by any significant rise in job creation. A 2007 report on the job creation effects of military spending in comparison with alternative uses, such as personal consumption, mass transit, health care, education and construction, revealed that military spending creates the fewest number of jobs of any of the above alternatives, with two of the categories- education and mass transit- creating “more than twice as many jobs as with defense.” Furthermore, the report concluded that per dollar spending in education will generate both higher average wages as well as more new jobs than in the military, and that there is “good reason for avoiding tax cuts as a means of promoting job creation” because “using the savings from a reduction in the military budget to lower taxes primarily for the wealthy” would have “a relatively weak payoff in terms of promoting decent jobs”.22

The recent huge increase in defense spending is not only economically unsound, but constitutes a direct threat to democratic policy. A sign of this threat is the “trend towards larger defense contractors, some of whom are national monopolies”, and the creation of “even more powerful and influential producer groups” to compete for defense contracts. This trend preceded the global increase in defense spending after 1998, in a manner that leads us to conclude that even if September 11 had never occurred, the defense industry would have managed to create or benefit from an event of similar magnitude and importance in order to keep itself alive and profitable. 1998 testimony from the US General Accounting Office (GA0) on “defense industry consolidation” accepted that “the defense industry is more concentrated today than at any time in more than half a century”. The purchase of Grumman by Northrop in 1994, the merger of Lockheed and Martin-Marietta in 1995, and of Boeing Company with McDonald Douglas in 1997, meant that “lobbying by defense contractors for business replaces even limited competition”. If we take the defense industry’s record as a contractor into consideration, it is easy to see the threat that aggrandizement poses to democracy. Lockheed Martin, the larger federal contractor with contracts worth more than $38 billion for 2009, has the most “misconduct instances” since 1995. The company was cited by the Federal Contractor Misconduct Database for 50 cases of serious contract fraud and violations, which included defective pricing, unlicensed exports, overcharge, bribery, Foreign Corrupt Practices Act Violations, violations of Arms Exports Control Act, emissions violations, nuclear safety violations, Federal Election Law violation etc. The next four largest federal contractors, all of which are in the defense industry –Boeing, Northrop Grumman, General Dynamics, Raytheon- have been found guilty of 98 instances of misconduct since 1995.23

Europe responded to these trends with the creation in 2000 of EADS, formed by the merger of Daimler Chrysler (Germany) with Aerospatiale-Matra (France) and Construcciones Aeronauticas SA (Spain). As a prelude to this merger, the Eurofighter Typhoon project, initiated in 1998 by a consortium of European firms, became a direct competitor of the US aircraft industry. The Eurofighter marketing team set an ambitious goal of exporting 500 aircraft by 2022. In 2000 Greece announced a decision to purchase 60 Eurofighters, rising to a possible 90. However, the purchase never occurred. Instead of the more costly Eurofighters, in October 2005 the conservative government headed by K. Karamanlis requested a possible purchase of 30 F-16C/D Block 52+ aircraft (with an option on 10 more) and other support equipment. The principal US contractors were Lockheed Martin, Boeing, Raytheon, Northrop-Grumman and the British BAE.24 In July 2006, Greece’s Government Council for Foreign Affairs and Defense (KYSEA) re-arranged its military procurement program for 2006-2010. EUR 11.39 billion was earmarked over a new five-year plan: EUR 2.9 billion for new orders (mainly 20 transport helicopters, 6 French frigates, 5 maritime patrol aircraft and 400 Russian armored troop transport helicopters), and the remaining 8.43 billion for equipment ordered by previous governments.25

According to the Stockholm International Peace Research Institute (SIPRI) annual report, Greece was the fifth largest recipient of major conventional weapons from 2004 to 2008, behind China, India, the United Arabic Emirates (UAE) and South Korea, accounting for 4 percent of global arms imports. This percentage is monstrous if we take into consideration that Greek GDP is only a little higher than that of the US state of Washington ($333 billion in 2009).26 Greece has the fifth Mirage fleet in the world and one of the largest F16 fleets in Europe. The Hellenic Air Force ordered its first 40 F16s in 1985, in the so-called “purchase of the century” signed by the socialist government under A. Papandreou. Two major orders for 40 F-16C/D-50 Block 50 fighters in 1993 and 60 F-16 Block 52+ aircraft in 2000 were made by socialist governments headed by K. Simitis. Finally, in 2005 the conservative K. Karamanlis administration ordered 30 F-16C/D Block 52+ aircraft, which were delivered in 2009. Greece has the highest military budget in Europe in proportion to GDP (3.6 percent in 2008) and ranks second in NATO behind the United States, despite the fact that it has not been actively engaged in any internal or external war for many decades. This contrasts with almost every other country in the globe with a military spending share exceeding 3 percent of GDP. In 2009, in the midst of the global financial crisis, Greece continued to spend $13.9 billion on its “defense”. Long standing tensions between Greece and Turkey are cited as the reason for this massive figure. But even Turkey, with an economy twice as big as that of Greece, with a population seven times larger, and with a constant undeclared war in its South-Eastern provinces, spent $19 billion in defense in 2009, amounting to 2,2 percent of GDP.27

We would probably not be in the realm of fantasy if we concluded that the order for 60 Eurofighters which Greece placed with the European consortium in 1999, and later cancelled, was a ticket for entry into the Eurozone.  Likewise, Greece’s access to the EU / IMF-backed  “support mechanism” in spring 2010 went ahead after informal promises were made by G. Papandreou’s government that, austerity measures notwithstanding, he would not forget the European arms industry in future defense contracts. Greek orders are crucial for the survival of literally thousands jobs in Germany and France: In 2009, Greece followed Turkey as the second largest German arms industry client and the third most important market for French military suppliers.28

In the second half of the previous decade (2005-2009) global arms sales rose by 22 percent. A recent report on the performance of the global aerospace and defense industries confirms that overall revenue “remained flat” and that “flat revenue growth during the 2009 economic crisis should be considered good industry performance, compared to other industries heavily impacted during the recession”. The report notes that “the defense industry generally relies on long-term contracts not greatly impacted by short-term economic events”, but moderate defense budgets, “additional cutbacks in large weapons programs… and the uncertain legacy of an historic global credit crisis” constitute great challenges for the industry. Despite these challenges, the report predicts that “the new decade ahead should mark a period of robust prosperity”.29 There are many reasons for this optimism; the most important among them being the Obama administration’s plans to spend $5 trillion on defense over the period 2010-2017.

On the other side of the Atlantic, EU member states spend around 180-200 billion Euros on defense – even though this only amounts to around one third of the US defense budget, it is still far larger than the annual figures for Russia and China. A recent report on the EU’s “Security and Defense Policy”, prepared by the Friedrich Ebert Foundation, highlighted the prospect of a future decrease in European influence around the globe as a consequence of an aging population, energy dependence and modest economic growth. To offset these disadvantages, the authors of the report proposed that EU governments strive to create a common European security and defense policy, involving the consolidation of European arm industries, common arms programs, joint military exercises, and intensification of the EU presence in Asia so as to render Europe “a major strategic actor with China.30 This prospect, amidst the ongoing depression, is a terrifying one. Germany has once again become a leader in the world arms industry (behind USA and Russia), doubling its exports over the last five years, leaving another European country, France, in fourth place among the top arms dealers worldwide.

Crisis and the environment

The above arms race is all the more harmful today for the added reason that public investment, especially in infrastructure projects and social services, is absolutely vital if we are to offset the effects of global warming on human societies. According to the World Water Council, by 2025 “half the world’s population will be living in areas that are at risk from storms and other weather extremes”. The economic cost of these events is set to spiral: Economic looses from major natural disasters reached $30 billion in 1990, $70 billion in 1999 and over $150 billion in 2005. State planning is now more urgent than ever, because just a recovery is not enough. Counterbalancing climate change impacts on water resources, the arrival of more pests and diseases, increases in heat-related-illnesses and breathing problems will be a daunting challenge for states to rise to.31

The vulnerable position of the insurance industry in 2008-2009 was not only linked to “toxic” investment [as in the case of insurers with large banking operations like AIG Holding Co, ING and Fortis] but to the fact that natural disasters, which continue to increase in number and severity, have already begun to undermine future prospects for the industry. Insurance companies managing 11 per cent of global financial assets have come to realize that their long-term health depends on reducing greenhouse gas emission to prevent climate change. Hurricane Katrina set the alarm bells ringing: in addition to being the most costly weather-related disaster ever, with economic losses in excess of $126 billion, it cost the industry over $30 billion in insured losses. Many executives acknowledged beyond “any doubt… that a warming of the atmosphere and oceans is causing an increased likelihood of storms, tidal waves, hailstorms, floods and other extreme events”, and that “failure to act would leave the industry and its policyholders vulnerable to truly disastrous consequences”.32

When drawing up the common constitution, instead of imposing strict anti-deficit rules or balanced-budget requirements the European Commission should have encouraged member-states to specify that water and other resources must be publicly delivered, a provision that very few countries in the globe have adopted.33 Unfortunately, international organizations approach water resources as a new promised land for profitable private investments, hiding their intentions behind phrases like “good water governance, strong regulations, sound policies” and “full-cost pricing for water services”. The World Water Vision, an ambitious project under the auspices of the Global Water Partnership, an institution created in 1995 on the initiative of “governments, multilateral banks, UN agencies, professional associations, and the private sector”, recommended that “private actors provide the main source of infrastructure investment” in future water supply projects. According to World Water Vision estimates, the public sector share in water resource investment should be reduced from 58-71 percent of total investment in 1995 to 25 percent in 2025, with the remainder covered by “private firms”, “international private investors” and “donors”.34 Nowhere in these reports will you find an acknowledgment that water “is not a commercial good… but rather a human right and a public trust” or that “water corporations… are dependent on increased consumption to generate profits and will never be able to seriously join the effort to protect and conserve source water.”35

In poor or developing countries which are submitted to the yoke of the World Bank or the IMF, water supplies are targeted for unrestrained commercial exploitation; private participation in water resources has been used as an instrument for the repayment of external debt or as a precondition for World Bank lending. A 2001 study of water privatization schemes in three African countries (the Ivory Coast, Senegal, Guinea-Bissau,) concluded that “High prices and disconnections must mean that the poorest segments of society are likely to be the main losers from the privatization process”.36 Another, more thorough case study by the same writer, examining privatization processes in Sub-Saharan African, a region dominated by three French multinationals (Saur, Suez and Vivendi), revealed that private companies failed “to comply with regulation”, that there was a “problem of reconciling the conflict between the profit motive and the provision of a social service”, and that “consumers cannot pay tariffs sufficient to finance the levels of investment required in water infrastructure”.37

“Development” achieved via economic growth measured in purely monetary terms should no longer be the standard in the modern world. Given that “people who have sufficient access to natural resources to meet their basic needs generally do not consider themselves poor”, integrated water [or other resources] management should focus on “”sustainable livelihoods” and enhancing the quality of life, rather than on the reduction of poverty in narrow monetary terms. Public ownership of basic human resources in democratically organized states should be the norm, not the exception, if we meant to be serious in claiming that we are adequately dealing with the problems in today’s world.38.


The majority of European governments are currently waging a war against their societies and ordinary citizens, apparently oblivious of nature’s fight for survival against mankind. In that fight, the conventional arsenal now owned by nations is not merely incapable of bringing victory; it is likely to prove suicidal. In late August 2007, the Greek government was effectively forced to stand by as wildfires swept through large parts of the Western Peloponnese, leaving a smoldering trail of ashes in their wake. What was the financial cost – quite apart from the loss of human life – of “the largest environmental disaster in modern Greek history”? What relationship is there between the deep structural crisis being experienced by Greek agriculture (which has fallen from 9.9 percent of GDP in 1995 to less than 3.4 percent of GDP today) and the priorities set out under the Common Agricultural Policy following the creation of the EMU?39 The IMF and the EU are more than willing to count the cost involved in paying for 5.416 seasonal fire fighters, in a public fire service with more than 3.280 permanent posts unfilled, but they are unlikely to examine the how Greece would benefit from having fewer F-16 aircraft and more fire-fighting aircraft, fewer armored fighting vehicles and more fire-fighting vehicles.

In August 2007, the prophets of globalization confirmed that “the current economic situation is in many ways better than what we have experienced in years… Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe”. In 2010 the same prophets urged the Greek authorities “to privatize or close down the numerous state enterprises which have proven to cost tax payers large sums of money… and which may well be obstacles to more efficient market structure as long as they remain in the public hands.”40 The same market “fanaticism” that triggered the world crisis is now being promoted as the way out of it. In the mean time, salaries are being slashed and millions of jobs are on the line. US employers shed more than 7 million jobs in 2008 and 2009, the biggest employment loss since the 1930s. Another 7 million jobs were lost in the European Union over the same period. The official unemployment rate in the 27 EU member states rose from 16 million in the first quarter of 2008 to over 23 million in May 2010.41

A sustainable way out of the crisis should bring together ostensibly unconnected facets of the modern world which contributed to the collapse of the economic system and the world debt crisis: the Eurozone project, the arms race, global warming, the commercialization of society and the dominance of market-type relationships. Any solution which ignores the fact that the present crisis represents the failure of the political and economic setup dominant over the past thirty years, when “market economics” ruled supreme, will be incapable of tackling economic problems in the real world. With the EUR 110 billion “rescue package” the EU and the IMF may have shored up the European financial system against potential losses running into billions, but in doing so they risk plunging not only Greece but the whole of Europe into prolonged stagnation.42 The remedies now being touted by the Papandreou Government, the EU and the IMF, -more free markets, more powerful corporations, more “wage and labor market flexibility”, less welfare state, less democratic scrutiny and social rights – in short, the new mantra dominating not only Greece but the entire Eurozone – are more than likely to transform this crisis into something deeper than a simple “reproduction crisis of the capitalist system”.



1 On this see Ronald Janssen, “Greece and the IMF: Who Exactly is Being Saved?”, July 2010, Center for Economic and Policy Research, p. 1-8,

2 Kathryn M. E. Dominguez, “The European Central Bank, the Euro and Global Financial Markets”, Journal of Economic Perspectives, vol. 20, no. 4, Fall 2006, p. 70-74.

3 Neil Fligstein and Iona-Mara-Drita, “How to make a Market: Reflections on the Attempt to Create a Single Market in the European Union”, The American Journal of Sociology, vol. 102, no. 1, July 1996, p. 1-33.

5 F. Lane, ibid., p. 54-55. George Zombanakis, Constantinos Stylianou, Andreas S. Andreou, “The Greek Current Account Deficit: Is it Sustainable After All”, Working Paper. Bank of Greece, June 2009, no. 98, p. 3-16, Gikas Hardouvelis, Platon Monokroussos, Tasos Anastasatos, Costas Vorlow, “Global financial crisis weighs on Greek growth outlook”, Eurobank EFG Economic Research, December 2008, p. 10,

6 Dimitris Malliaropulos, “ How much did competitiveness of the Greek economy decline since EMU entry?”, Eurobank Research Economy and Markets, vol. 5, no 4, July 2010, p. 1-2, 12-13, Gikas Hardouvelis, Platon Monokroussos, Tasos Anastasatos, Costas Vorlow, ibid., p. 10-11

7 Philip R. Lane, “The Real Effects of European Monetary Union”, The Journal of Economic Perspectives, vol. 20, no. 4 (Fall 2006), p. 52-55.

9 Ioannis Michaletos, “2007: the Top 10 Greek Corporations to Watch”, 1/17/2007,

10 Constantine G. Athanassopoulos & Vassiliki Delitheou, “Globalization and Profits in the Balkans”, The Bridge. A quarterly review on the Greek presence in SE Europe & the SE Mediterranean”, 2006, no 2, p. 58-61,

11 Paul Hannon, “Greece Bailout: What Role For Banks?”, February 11, 2010, Bojana Todorovska, “Vienna Initiative. Largest Foreign Banks in Serbia Reaffirmed Commitments”, 26 February 2010, Stewart Fleming, “Playing for more than just money”, 24/09/2009,

12 Camilla Andersen, “Agreement with Banks Limits Crisis in Emerging Europe”, October 28, 2009, IMF Survey Magazine,

13 European Commission, 12/5/2010, “Greece Amendment to the Support Measures for the Credit Institution in Greece”,

14 Enosi Ellinikon Trapezon, “To elliniko trapeziko sistima to 2009, Iounios 2010”, [Hellenic Bank Association,The Greek Banking System in 2009, June 2010”], p. 62-63,

15 Allan H. Meltzer, “From Inflation to More Inflation, Disinflation and Low Inflation, Keynote Address”, Conference on Price Stability Federal Reserve Bank of Chicago, Thursday, November 3, 2005, p. 1-13,

16Fred Moseley, “The Decline in the Rate of Profit in the Postwar US Economy: A Comment on Brenner”, p. 1-2, For a more traditional view see also, Merih Uctum, Sandra Viana, “Decline in the US profit rate: a sectoral analysis”, Applied Economics, vol. 31, no. 12, 1999, p. 1641-1652.

17 Richard E. Wagner, “Boom and Bust: The Political Economy of Economic Disorder”, The Journal of Libertarian Studies, vol. 4, no. 1, Winter 1980, p. 1-37.

18 “Co-ordinated public debt issuance in the euro-area. Report of the Giovannini Group”, November 2000, p. 1-4,

19 Orazio Mastroeni, “Pfandbrief-style products in Europe” p. 44-45,

20 European Central Bank, “The euro bonds and derivative markets”, June 2007, p. 1-20,

21 Carl Conetta, “An Undisciplined Defense. Understanding the $2 Trillion Surge in US Defense Spending”,Project on Defense Alternatives. Briefing Report 20, January 8, 2010, p. vi, 1, 7, 10, 13-15, Larry Makinson, “Outsourcing the Pentagon: Who benefits from the Politics and Economics of National Security?”, Center for Public Integrity, Washington DC: 29 September 2004,

22 Robert Pollin and Heidi Garrett-Peltier, “The U.S. Employment Effects of Military and Domestic Spending Priorities”, Department of Economics and Political Economy Research Institute, University of Massachusetts, Amherst, October 2007, p. 6-15,

23 Keith Hartley, “The Arms Industry, Procurement and Industrial Policies”,in Todd Sandler and Keith Hartley (edit.), Handbook of Defense Economies. Volume 2. Defense in a globalizing world, Amsterdam 2007, p. 1156, 1168. Federal Contractor Misconduct Database, “Lockheed Martin”,,73,221,html?ContractorID=38&ranking=1. POGO’s Updated Federal Contractor Misconduct Database, “Lockheed Martin Leads In Contracts and Penalties”, April 21, 2009, “Defense Industry Consolidation: Competitive Effects of Mergers and Acquisitions. Testimony”, 03/04/98,

24 Defense Security Cooperation Agency, “Greece – F-16C/D Block 52+ Aircraft”, October 26, 2005, “Greece Alters Its Defense Spending Priorities”, October 20, 2008,

25 “Greece Alters Its Defense Spending Priorities, ibid.

26 SIPRI Yearbook 2009, “Armaments, Disarmaments and International Security. Summary”, Stockholm 2009, p. 15,

27 Monika Wyrzykowska, “Greek Military Spending in light of the Euro Zone Crisis”, Mustafa Kutlay and Arianna Catalano, “Making Deals instead of Wars: New Turkey’s Approach for Greece in the Doldrums”, Tuesday, 18 May 2010,

28 SIPRI Yearbook 2009, ibid., p. 14. Sven Heymann, “German arms exports more than double”, 31 March 2010, Derek Scally, “Germany now world’s third-largest arms dealer”,

29 “2009 Global Aerospace & Defense Industry Performance Wrap-up. A study of the 2009 performance of 91 global A&D companies”,p. 2-4, 17,

30 “The Lisbon Decade”, 19/04/2010,

31 “Climate change boosting flood and drought: experts”,

32 Virginia Haufler, “Insurance and Reinsurance in a Changing Climate”,in Henrik Selin and Stacy D. VanDeveer (ed.), Climate Change Politics in North America, Canada Institute. Occasional Paper Series, October 2006, p. 87-88,

33 Maude Barlow, “Blue Covenant. The Alternative Water Future”, Monthly Review, vol. 60, no. 3, July-August 2008, p. 125-141.

34 Saeed Rana and Lauren Kelly, “The Global Water Partnership Addressing Challenges of Globalization: An Independent Evaluation of the World Bank’s Approach to Global Programs”, Washington D.C., 2004, p. viii. “Investing for the Water Future”, p. 60-65,

35 Maude Barlow, ibid., p. 125-141. See also Sandra L. Postel, “Entering an Era of Water Scarcity: the Challenges Ahead”, Ecological Applications, vol. 10, no. 4, August 200, pp. 941.

36 Kate Bayliss, “Water privatisation in Africa: lessons from three case studies”, Public Service International Research Unit, May 2001, p. 12,

37 Kate Bayliss, “Utility Privatization in Sub-Saharan Africa: A Case Study of Water”, The Journal of Modern African Studies, vol. 41, no. 4, Dec., 2003, p. 508-511, 527-529.

38 BothEnds, “Towards People Oriented River Basin Management: An NGO Vision” in Danielle Morley (ed.), Freshwater Report, 12/5/2000, p. 18, Stefanie Jeukens, Edit Tuboly, Paul Wolvekamp, Danielle Hirsch, “Both Ends Feedback on Gender, Politics and Participation: A summary of summary of views and considerations which surfaced during the NGO Water Vision consultations, in World Water Vision. Results of the Gender Mainstreaming Project: A Way forward, March 2000, p. 42,

39 Greece with the “highest share among EU member states of exports of food, drinks and tobacco in its total exports (18,7 percent in 2006)” remains a net importer of agricultural products due to its huge imports of livestock from the EU. Elena Kagkou, “Agriculture, Fishery, Food and Sustainable Rural Development in Greece, Options Méditerranéennes, serie B, no 61, 2008, p. 214, “Peloponnese”,

40 Excerpt from the 2007 OECD World Economic Outlook in Dirk J. Bezemer, “”No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models”, MPRA,Paper No. 15892, 16. June 2009, p. 20, July 2010. IMF Country Report No. 10/217. “Greece: Stand-By Arrangement. Review Under the Emergency Financing Mechanism”, Washington, D.C., p. 17,

41 “European Commission. Unemployment statistics”,

42 Ronald Janssen, ibid., p. 7-8.


Latest Issue

2024: Vol. 23, No. 1

Latest Issue

2024: Vol. 23, No. 1