ANALYSIS/OPINION
When an overwhelming majority of the Greek people voted “no” in a referendum that would decide whether Greece would continue to borrow its way into a hopeless debt spiral, the bankers that own the country’s debt recoiled in confusion.
The storyline floated in the global media is suspiciously pat: A lazy, indolent and corruption-prone bunch of Greeks borrowed more than they could repay from French and German banks and are balking at repaying what they owe. Well, on its face, that characterization has some truth to it. After all, the media have been replete with stories about part-time cab drivers who were able to obtain 1 million-euro lines of credit from Greek banks with “lenient” lending policies.
But that only tells half the story — one that shouldn’t be forgotten as Greece and its creditors struggled to cut a new deal over the weekend.
The other half of the tale is that international banks and financiers used the cover of the euro to misprice Greek debt and thus “enabled” the nation to borrow far more money at much lower interest rates than it would otherwise have been able to do. The facts speak for themselves: Both the Greek trade and budget deficits rose from less than 5 percent before 1999, when it adopted the euro, to over 15 percent in 2009, when, in the wake of the global financial crisis, the true extent of Greece’s financial crisis finally came to light. Today, largely as a result of the austerity policies imposed by the banks and their economy-shrinking aftereffects, Greek debt hovers well over 20 percent of GDP.
The fact is that the creditors who are now so quick to demand austerity from Athens in return for continued financing were the same creditors who cynically calculated that, no matter how high of a tab Greece ran up, it would be eventually bailed out by the eurozone bloc. There are significant economic, political and historical reasons why these creditors would come to this conclusion — not the least of which is that Greece’s tendency to resort to authoritarian, military-style governments in times of crisis poses a real geopolitical threat to Europe.
But historical ramifications aside, the international financial cartel’s bet on the Greek people’s total capitulation to banker rule may have backfired. Why do I say this? Just look at the bankers crowing about how terrible the Greek voters’ decision was for Greece.
In a note published last week, cynically entitled “Greece: Time for Adults to Speak,” Bank of America Merrill Lynch analysts asserted that the voters’ decision to reject draconian austerity measures in exchange for a bailout puts them in a worse negotiating position should they return to the table with European Central Bank leaders. The note reads, in part: “The paradox is that Greece will now have to agree on a new program with the creditors, with tougher conditions than in the proposal that the referendum has just rejected.”
That’s wishful thinking on the part of the banks. Greeks have already endured the worst they could possibly suffer. Remember all the suicides by distraught pensioners, unemployment rates over 50 percent and the mass exodus of the well-educated and wealthy that occurred at the height of the eurozone crisis in 2010 and 2011? And don’t forget that the European Central Bank has already renegotiated the terms of the Greek debt repayment several times, and each subsequent iteration has imposed terms that make it less — not more — likely that Greece will ever be able to repay its debt in full.
While the Greeks have already proven willing and able to bear the brunt of the lenders’ wrath, the same cannot be said of the lenders themselves. They have not been able to stomach the notion of significant debt write-downs that would be needed to bring even minimum finance payments in line with reality.
The banking community has been crowing on about the imposition of “moral hazard” should Greece be allowed to escape its debt obligations. But this really turns the idea of moral hazard on its head. Lenders, not borrowers, bear the moral hazard when they expect to be bailed out by governments after making bad loans. This is the real point here. The lenders want to set a precedent that they will be made whole by the government should their poor lending decisions backfire.
At the end of the day, the Greeks have proven their point. They will either drop the euro to re-establish their own currency, or they will obtain significant concessions, including more lenient repayment terms and debt forgiveness from the banks. It is really the banks and private financiers who are being put on the spot here. The Greeks have had their day of reckoning and are coming out of the other side of the storm. But, here in America, we have kicked the can down the road. When our day of reckoning finally arrives, the fallout will be far worse.
• Armstrong Williams can be reached at 125939@example.com.
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