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The glory that was Greece…

30 May 2011

Via Naked Capitalist comes of a report of Europeans doing unto their fellow Euros, as they used to do unto us… and they understand that quite well:

The Financial Times reports that a new austerity package is about to be foisted on Greece. It amounts to asset stripping and a serious curtailment of national sovereignity:

European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens….pressure is building to have a deal done within three weeks because of an IMF threat to withhold its portion of June’s €12bn bail-out payment unless Athens can show it can meet all its financing requirements for the next 12 months.

f you think “international involvement in tax collection ” is something new, let me introduce you to a bankruptcy attorney named Benito Juárez .   In March 1861, with Mexico unable to pay the exorbitant interest on its foreign debt:

The [Mexican] government was willing to acknowledge the debts it had inherited from the past governments, but it was going to have to stop payments for the next two years. …

… France proposed taking over Veracruz and collecting customs reciepts until the debt was repaid.  This was the standard 19th century way of dealing with debtor nations … creditor nations would simply occupty the debtor country’s ports and pay themselves out of tax receipts.  The Mexican government offered to negotiate with the European creditors, but the Europeans expected some kind of security while payment terms were worked out.  Reluctantly, Mexican forces were withdrawn from Veracruz.  The port was basically turned over as collateral on the outstanding loans and a joint force of the creditor nations landed in December 1861…

(Gods, Gachupines and Gringos © 2008, Richard Grabman, pp 175-77)

The difference between Mexico in 1861 and Greece in 2011 is that no one is talking about landing troops… of Marines… yet.

… the notion that the invading banker hoards are going to “supervise” tax collection is sure to mean that they will make certain that they are first in getting tax receipts. As various readers have pointed out, lower middle and middle class Greeks have taxes withheld from wages; it’s the rich and the participants in the black economy that escape. It is far fetched to think that foreign involvement will improve matters; indeed, I’d expect everyone who can to operate out of the black economy as an act of rebellion.

The methods involved in a “serious curtailment of national sovereignty” hadn’t been perfected in 1861: the creditors simply installing a foreign regime and the result wasn’t just a black market, but a full-scale war against the Austrian rent-a-crown (whose administration, incidentally, only managed to wrack up more debt).

The Greeks, of course, have their own long and convoluted history to consider when they want to draw parallels with the present, but surprisingly, they are looking at recent Latin American history in looking for a way out of national peonage.

The Greeks appear to have a keen appreciation of what is in store for them. Protests have been underway in Athens, and the locals seem to think they could eventually produce bloodshed. We received an e-mail forwarded from a source claiming to be in Athens… Note that it says that “parts of the national capitalist class” are taking the idea of leaving the Eurozone seriously. But reading between the lines, the writer of the e-mail appears to see that as a local looting scheme, as opposed to one to benefit foreign bankers.

This is the fifth day and the crowd is increasing in Syntagma square in Athens. There must have been more than 30.000 people this evening and there are still there more than 10.000 at 11.30 pm (today). As a genuine gathering of the multitude there are not prevailing slogans apart from “thefts” and “take a helicopter and leave this place” (it refers to what has happened in Argentina). Flags of Argentina can be also seen among the demonstrators. In the front a banner says in Spanish “we are desperate, we woke-up. What time is it? Its time for them to leave”. People are dancing shouting or just hanging around talking to each other. A “general assembly” is held at late hours in the square, where people can take the microphone, speak and say what they think freely. It’s not stopping and it will not stop although I think that maybe there will be less people the forthcoming days.

The Argentine reference is to the kinder, gentler method of dealing with debt collectors.  When it was “only” Latin American countries where foreign bankers were willing to make dubious loans benefiting only the ruling classes, the French Foreign Legion, or gunboats with United States Marines or — after World War II — “debt restructuring” could be counted on to force repayment.  That is, until the Argentines did the unthinkable.

Forced at one point to give up their own currency, and having weathered “restructuring” after “restructuring” in the 1990s and the first few years of the

Kirchner and Lavagna

21st century, in 2002, Argentina simply said ¡No mas! … or, in English, Fuck you, to the international lenders.  After putting up with threats and bullying for the next couple of years, finally in 2005, Nestor Kirchner and his finance minster Robert Lavagna — operating on the old principal that when you owe the IMF a billion dollars you have a problem, but when you own the IMF 84 billion dollars… the IMF has a problem — forced the bankers to take a two-thirds loss on their loans.

The conventional wisdom in the financial media was that Argentina was doomed… not hardly.

Naked Capitalism seems to think that “going Argentine” is a recipe for disaster for Greece.   But,  the financial media was unananmous in predicting disaster in Argentina, too.  Shedding the U.S. dollar, and the foreign debt was hardly painless, but Argentina re-emerged, not in the “dollar zone” but as a leader of its own sphere of influence (Mercosur) and a model for other nations seeking to fend off the barbarians of capital.  Shedding the Euro, and repudiating the foreign debt will lead to huge disruptions in Greece, and probably violence, but what other option is there for Greece?  Attempting to stave off bankruptcy in 1859 and 1860, the Juárez government was desperately selling off national assets (as the “international community” is attempting to force the Greeks to do).  Selling under pressure, the sales didn’t bring in nearly the funds needed even for interest payments to Juárez , and the Greeks can’t expect to do much better.

Disruptions in commerce, and possible riots if the Greeks default?  There was in Argentina, too, but at least Argentina’s creditors got something back.  The disruptions in Mexico of the 1860s were quite a bit rougher.   But, Mexican preserved their national sovereignty and Europeans had to write off their loans to the previous Mexican governments as a wash.

Perhaps, in picking a new IMF Managing Director the Greeks — and the other debtor nations — might want to keep the Mexican lesson in line… the Mexicans have beat the French before, and know how to liquidate their debts quite neatly…

4 Comments leave one →
  1. kwallek permalink
    31 May 2011 9:41 am

    Discounting paper is as old as the hills, it is what risk and its pricing are all about. In the case of Europe, much of the debt was not priced high enough to account for the risk, people who bought that paper with its low rate of return made a mistake and should get a close haircut-its as old as the hills.

  2. "craig" permalink
    1 June 2011 1:05 am

    Haircuts are called for. Capital worshipers insist on keeping all the profits. Why should the general public have to make good their bad bets? Investing is really just gussied up gambling. If the bankers or the bond purchasers made poor investment decisions, they should have to suffer the consequences.

    This business of taking out bad investment decisions on the poorest and weakest in society is nothing other than brutality. I much prefer the decision of Iceland to Ireland in that regard. Iceland just told the bank: tough luck, we’re not making it good. Sure there was a default, but too bad. Ireland, oddly, strangely, inexplicably volunteered to back private debt that the government wasn’t really obligated for. Now the Irish people will suffer all the cut-backs for that neo-liberal decision to “be responsible.”

    Does anyone else ever notice that “being responsible” always means giving more money to people who already have plenty and taking it from people who have little to start with? Odd that this massive transfer of wealth from the working classes and middle classes to the very wealthiest has seen so little public objection.

    The Greeks may have it about right: time to burn a few things and demonstrate open disdain for this crappy formula.

  3. 2 June 2011 9:39 pm

    This development says a lot about current market mood – the players still value preservation of status quo, and willingness of the governments to borrow and spend more. Austerity problems are of little concern; US weak economic news are disregarded.


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