The truth about the Greek Crisis


The most important 48 hours in EU history? What is going on in Athens right now is truly historic. Indeed, superlatives aside, it is nearly impossible to describe the gravity of the situation at hand. What happens in the next 48 hours in Athens will determine the fate of the entire eurozone, the EU and — indeed — the world economy as a whole. This is the very climax of the eurocrisis.

What we are calling the Greek crisis is also a crisis of structural economic dysfunction, this is a crisis of the eurozone, in which Athens is not a leading actor but merely a stage set. Unfortunately for Greece and for Europe, the only way to demand a sane solution to this overwhelming crisis right now is through a full-blown revolt against the Greek political establishment and the foreign powers to which it has been so beholden. From Syntagma Square, we are hearing nothing less than a cry for revolution.

Photo gallery: historic 19-J protests shake Spain


roarmag.org/democracy-vs-mythology-the-battle-in-syntagma-square What is going on in Athens at the moment is resistance against an invasion; an invasion as brutal as that against Poland in 1939. The invading army wears suits instead of uniforms and holds laptops instead of guns, but make no mistake – the attack on our sovereignty is as violent and thorough. Private wealth interests are dictating policy to a sovereign nation, which is expressly and directly against its national interest. Ignore it at your peril. Say to yourselves, if you wish, that perhaps it will stop there. That perhaps the bailiffs will not go after the Portugal and Ireland next. And then Spain and the UK. But it is already beginning to happen. This is why you cannot afford to ignore these events.

I left Greece in 1991 and did not return until 2006. For the first few months I looked around and saw an entirely different country to the one I had left behind. Every billboard, every bus shelter, every magazine page advertised low interest loans. It was a free money give-away. Do you have a loan that you cannot manage? Come and get an even bigger loan from us and we will give you a free lap-dance as a bonus. And the names underwriting those advertisements were not unfamiliar: HSBC, Citibank, Credit Agricole, Eurobank, etc. Regretfully, it must be admitted that we took this bait “hook, line and sinker”. The Greek psyche has always had an Achilles’ heel; an impending identity crisis. We straddle three Continents and our culture has always been a melting pot reflective of that fact. Instead of embracing that richness, we decided we were going to be definitively European; Capitalist; Modern; Western. And, damn it, we were going to be bloody good at it. We were going to be the most European, the most Capitalist, the most Modern, the most Western. We were teenagers with their parents’ platinum card.

That irresponsibility, however, was only a very small part of the problem. The much bigger part was the emergence of a new class of foreign business interests ruled by plutocracy, a church dominated by greed and a political dynasticism which made a candidate’s surname the only relevant consideration when voting. And while we were borrowing and spending (which is affectionately known as “growth”), they were squeezing every ounce of blood from the other end through a system of corruption so gross that it was worthy of any banana republic; so prevalent and brazen that everyone just shrugged their shoulders and accepted it or became part of it.

Media Mythology – Greeks are lazy. This underlies much of what is said and written about the crisis, the implication presumably being that our lax Mediterranean work-ethic is at the heart of our self-inflicted downfall. And yet, OECD data among its members show that in 2008, Greeks worked on average 2120 hours a year. That is 690 hours more than the average German, 467 more than the average Brit and 356 more than the OECD average. Only Koreans work longer hours.

Media Mythology – Greeks retire early. The figure of 53 years old as an average retirement age is being bandied about. So much, in fact, that it is being seen as fact. The figure actually originates from a lazy comment on the NY Times website. It was then repeated by Fox News and printed on other publications. Greek civil servants have the option to retire after 17.5 years of service, but this is on half benefits. The figure of 53 is a misinformed conflation of the number of people who choose to do this (in most cases to go on to different careers) and those who stay in public service until their full entitlement becomes available. Looking at Eurostat’s data from 2005 the average age of exit from the labour force in Greece was 61.7; higher than Germany, France or Italy and higher than the EU27 average.

Media Mythology – Greece is a weak economy that should never have been a part of the EU. One of the assertions frequently levelled at Greece is that its membership to the European Union was granted on emotional “cradle of democracy” grounds. This could not be further from the truth. Greece became the first associate member of the EEC outside the bloc of six founding members (Germany, France, Italy and the Benelux countries) in 1962, much before the UK. It has been a member of the EU for 30 years. It is classified by the World Bank as a “high income economy” and in 2005 boasted the 22nd highest human development and quality of life index in the world – higher than the UK, Germany or France. As late as 2009 it had the 24th highest per capita GDP according to the World Bank. Moreover, according to the University of Pennsylvania’s Centre for International Comparisons, Greece’s productivity in terms of real GDP per person per hour worked, is higher than that of France, Germany or the US and more than 20% higher than the UK’s.

Media Mythology – The first bail-out was designed to help Greek people, but unfortunately failed. It was not. The first bail-out was designed to stabilise and buy time for the Eurozone. It was designed to avoid another Lehman-Bros-type market shock, at a time when financial institutions were too weak to withstand it. In the words of BBC economist Stephanie Flanders: “Put it another way: Greece looks less able to repay than it did a year ago – while the system as a whole looks in better shape to withstand a default… From their perspective, buying time has worked for the eurozone. It just hasn’t been working out so well for Greece.” If the bail-out were designed to help Greece get out of debt, then France and Germany would not have insisted on future multi-billion military contracts. As Daniel Cohn-Bendit, the MEP and leader of the Green group in the European Parliament, explained: “In the past three months we have forced Greece to confirm several billion dollars in arms contracts. French frigates that the Greeks will have to buy for 2.5 billion euros. Helicopters, planes, German submarines.”

Media Mythology – The second bail-out is designed to help Greek people and will definitely succeed. I watched as Merkel and Sarkozy made their joint statement yesterday. It was dotted with phrases like “Markets are worried”, “Investors needreassurance” and packed with the technical language of monetarism. It sounded like a set of engineers making minor adjustments to an unmanned probe about to be launched into space. It was utterly devoid of any sense that at the centre of what was being discussed was the proposed extent of misery, poverty, pain and even death that a sovereign European partner, an entire nation was to endure. In fact most commentators agree, that this second package is designed to do exactly what the first one did: buy more time for the banks, at considerable expense to the Greek people. There is no chance of Greece ever being able to repay its debt – default is inevitable. It is simply servicing interest and will continue to do so in perpetuity.

And the biggest Media Myth of them all: Greeks are protesting because they want the bail-out but not the austerity that goes with it. This is a fundamental untruth. Greeks are protesting because they do not want the bail-out at all. They have already accepted cuts which would be unfathomable in the UK – think of what Cameron is doing and multiply it by ten. Benefits have not been paid in over six months. Basic salaries have been cut to 550 Euros (£440) a month. So, the case is not that Greeks are fighting cuts. There is nothing left to cut. The IMF filleting knife has gotten to pure, white, arthritis-afflicted bone. The Greeks understand that a second bail-out is simply “kicking the can down the road”. Greece’s primary budget deficit is, in fact, under 5bn Euros. The other 48bn Euros are servicing the debt, including that of the first bail-out, with one third being purely interest. The EU, ECB and IMF now wish to add another pile of debt on top of that, which will be used to satisfy interest payments for another year. And the Greeks have called their bluff. They have said “Enough is enough. Keep your money.”

What is happening in Syntagma Square is beautiful; filled with hope; gloriously democratic. A totally bi-partisan crowd of hundreds of thousands of people have occupied the area in front of our Parliament. They share what little food and drink there is. A microphone stands in the middle, on which anyone can speak for two minutes at a time – even propose things which are voted by a show of thumbs. Citizenship.

And what they say is this: We will not suffer any more so that we can make the rich, even richer. We do not authorise any of the politicians, who failed so spectacularly, to borrow any more money in our name. We do not trust the people that are lending it. We want a completely new set of accountable people at the helm, untainted by the fiascos of the past.

This is why the matter concerns you directly. Because this is a battle between our right to self-determine, to demand a new political process, to be sovereign, and private corporate interests which appear determined to treat us like a herd, which only exists for their benefit. It is the battle against a system which ensures that those who fuck up, are never those that are punished – it is always the poorest, the most decent, the most hard-working that bear the brunt.  The Greeks have said “Enough is enough”. What do you say?


Grassroots politics flourish in Greek turmoil The €110 billion ($157 billion) Memorandum of Agreement signed between the Greek government and the troika of the IMF, the EU and the ECB in May 2010 was met by much weaker dissent than many had expected. In early June 2011, the Papandreou government announced a proposed new round of public spending cuts and a colossal privatisation program as part of a fresh agreement with the troika, in a last-ditch attempt to avoid default. It seems that the government had failed to sense the spreading despair and anger over the original Memorandum: in a country that had seen public sector wage cuts in the range of 20 per cent, VAT increase to 23 per cent – and mass lay-offs, redundancies and cuts in the private sector, an ever-growing proportion of the population was rapidly approaching poverty. By the end of this year, unemployment will have reached 20 per cent, including 40 per cent of those aged 18-25. In addition, pensions will be cut by up to 20 per cent, and the minimum wage reduced to €600 ($850) a month. The atmosphere is sizzling, and the occupations of town squares across Spain this spring found more sympathisers in Greece than many would have expected. Solidarity demonstrations outside the Spanish Embassy in Athens were quickly relocated to Syntagma, the main square overlooked by the Parliament building. And suddenly, that was it: a Pandora’s box of discontent had opened.

The thousands of people coming together daily at Syntagma square to participate in assemblies and joint activities have demanded nothing specific, but represent something entirely different and overwhelming. Everyone at these gathering is allowed equal time to speak, and issues range from organisational matters to resistance politics and international solidarity. Debates take place over the economy, education, and alternative commerce – and nothing is beyond proposal or dispute. People from different strands of life, political affiliations and ages are rushing to squares across the country to hear – and to be heard – without mediation, external supervision or internal force. In Athens, not only was this one of the most massively attended protests of recent times, it also seems to have been the one with the most immediate effects: the city saw battlefield-like scenes with the existing hostility toward the police quickly developing into vivid hatred – fuelled by oft-reported cases of police brutality against demonstrators in recent years and against people on the day who had never previously demonstrated.

There is a mass mobilisation that draws a distinction between representational and grassroots politics. For the masses, the Memorandum is not just a sum of persons or abhorrent policies, but a system of power that has misruled the country for 30 years, bringing it to the edge of collapse. It is a system of beliefs, values, expectations and political roles and identities that cannot be abolished simply by replacing the head or members of the government. The people in the squares have started, again, to believe that they have the freedom and the responsibility to act; they are urging radical change through the creation of different personal and social relations. By now, the distance between the people and their representatives might seem unbridgeable; as the old system of government crumbles under the burden of sovereign debt, a new, grassroots system of politics is starting to make itself heard from the ground.

Hara Kouki is a historian and a doctoral candidate at Birkbeck College, London, and Antonis Vradis is a geographer, a doctoral candidate at the London School of Economics and Alternatives Editor of CITY. They are both members of the Occupied London collective and are based in Athens, Greece.


Why the media lies about Greece 

MYTH #1: The Greeks are profligate The unquestioned assumption in the international media is that the Greek debt crisis was caused by excessive state expenditure, an overburdened welfare state and an inflated public sector.

TRUTH #1: The Greek welfare state is actually anemic Here are the facts:

  • Public spending: according to the Center for American Progress, public spending in Greece is only 44.6% of GDP. This is lower than the EU average, lower than Germany’s 46.6% and considerably lower than Sweden’s 55%.
  • Tax collection: the real problem is not social expenditure on the poor but the lack of tax collection from the rich. From 2001 to 2007, Greece collected only an average of 39.4% of GDP in taxes, compared to the EU 44.4% average.

MYTH #2: The Greeks are lazy Another unquestioned assumption is that the Greeks don’t work enough — they retire at 50, take crazy amounts of paid holidays and lie around in the sun drinking ouzo most of the day. Angela Merkel, for example, recently called on the people of southern Europe to “work more, play less“, i.e. work more hours, retire earlier and take less holidays.

TRUTH #2: The Greeks actually work most of all Europeans Here are the facts:

  • Hours worked per week: According to Eurostat data of 2005, the Greeks worked 43.1 hours per week (compared to 35.7 hours in so-called ‘thrifty’ Germany, with its much-touted ‘Protestant work ethic’).
  • Hours worked per year: More recent OECD data shows the Greeks to work an average of 2,119 hours per year — 690 hours more than the average German, 467 more than the average Brit and 356 more than the OECD average. In fact, out of all OECD countries, only the Koreans work more.
  • Amount of paid holidays: The paid leave entitlement in Greece is 23 days per year. This is actually below the EU average, and significantly lower than the minimum of 28 days in the UK and 30 (!) days in Germany.
  • Retirement age: Again, Eurostat data from 2005, shows the average age of exit from the labour force in Greece to be 61.7. This was higher than in Germany, France or Italy and higher than the EU27 average. It is being raised even further now as a part of the EU-IMF bailout conditions.

MYTH #3: The Greeks are spoilt. In a truly terrible piece of journalism earlier this week, Sean O’Grady (economics editor of The Independent) wrote that “for many in northern Europe, the rioting in Athens must remind them of a tantrum by a spoilt child.” He refers specifically to popular opposition to the cutting of the so-called “13th and 14th salary” as a key indicator of this ‘spoiltness’.

TRUTH #3: The Greeks suffer more than anyone else. Here are the facts:

  • According to Eurostat, even before crisis, in 2008, one in five Greeks (among them almost half a million children) lived under the formal poverty line of 500 euros per month.
  • An independent survey by Kapa Research and the London School of Economics found even worse data: a third of the Greek population now live in formal poverty (and mind you: this was in 2007 – it’s actually gotten a lot worse since as a result of these draconian austerity measures).
  • Every child in Greece is born with a 40,000 euro debt on their name.
  • Greece’s youth are now referred to in the country as Generation 700: because that’s the maximum monthly wage that young Greeks will typically make – that is, if they are lucky enough to find a job: according to theFinancial Times, over 35 percent of young Greeks is out of work right now.
  • The so-called 13th and 14th salaries (Christmas, Easter and summer bonuses) are not additional salaries. As a Greek reader on this blog, Amalia, pointed out: “Greeks do not get two extra salaries a year; their annual salary is simply divided by 14 and they get two installments at Christmas, one and half at Easter and one and a half sometime in the summer.”
  • The Dutch get a 13th month worth of salary and Austria has a 14th month. Since these countries are not experiencing a similar budget crisis, this simply can’t be the cause of Greece’s debt.
  • The bottomline is: it doesn’t matter in how many installments you receive your salary (whether it’s in 12, 13, 14 or 2,000 parts); what matters is your annual salary. As long as you make less than 6,000 euros a year (as is the case for 20 percent of Greeks) you live in poverty — period.
  • Living costs in Greece are the highest of all of Europe.
  • As a result of this lethal combination of low wages and high living costs, millions of Greeks are forced to work two or three jobs just to survive.
  • Since last year’s bailout, the Greek economy contracted almost 5%, 50,000 to 65,000 business have been closed, unemployment increased by 400,000, industrial activity declined by 11%, the construction sector contracted by 73%. Partly as a result, suicide rates are reported to have nearly tripled.
  • All in all, this is a humanitarian tragedy of unprecedented proportions. How could Mr. O’Brady possibly keep a straight face arguing that the people experiencing all of the above, are somehow spoilt children?

MYTH #4 — the bailout is helping the Greek people. Part of O’Brady’s logic assumes that the Greeks should actually be grateful for receiving EU money in return for austerity measures. After all, EU taxpayers are footing the bill for the failures of the Greek people, no?

TRUTH #4: — it’s an indirect subsidy for Europe’s insolvent banks Here are the facts:

  • First of all, the bailout is not a handout: the Greek people don’t actually benefit from the EU-IMF bailout. Even if the bailout money really did go to the Greeks, this wouldn’t necessarily be beneficial for the Greek people at all. After all, the bailout is a loan for which the EU and IMF charge an exorbitant 8 percent interest rate, meaning northern European tax payers and the IMF should make a handsome profit from their so-called ‘rescue aid’, while the Greeks will only be further indebted by it.

  • The bailout serves not Greece but Europe’s insolvent banks: as former IMF Chief Economist Kenneth Rogoff pointed out last year already, “a lot of European banks are insolvent.” The real problem of the European crisis isn’t the fiscal crisis in the periphery, it’s the financial crisis in the banking sector of the core.
  • Private bank exposure to Greek sovereign debt: BNP Paribas: 5bn – 7 percent of equity; Société Générale: 2,5bn – 6 percent of equity; Postbank: 1,2bn – 21 percent of equity; Kommerzbank: 2,9bn – 27 percent of total equity. That’s just a handful. More data here.
  •  
  • Central Bank exposure to Greek debt: the European Central Bank has 190bn of exposure to Greek debt.
  • ECB close to insolvency: according to a recent report by Open Europe, asset losses as small as 4.25% could tip the ECB into insolvency. Greek default alone would chip 2.35% to 3.47% off of the ECB’s capital base. Add in a Portuguese or Irish default and you have the European Central Bank – the flagship of European capitalism – literally going bankrupt.

No one really seems to care about Europe’s ailing banks and the ECB. Indeed, hardly anyone is talking about it. Instead, we prefer to talk about the handful of Greek workers who retire at 50, the ‘spoilt children’ who refuse to accept the EU’s generous aid packages. By narrowly channeling our ire onto the suffering people of Greece, we have completely lost sight of the infinitely larger structural problems we face in the European Union. Our private banks are insolvent. Our central bank is on the verge of bankruptcy. This is the real crisis.


The anti-Greece campaign of the Dutch media There’s only one word that adequately describes the majority of Dutch media reports on Greece right now: a witch hunt. Apparently this kind of nonsense works. By now, 58 percent of Dutch people are opposed to ‘giving’ even a penny to Greece.

In 1974, after seven years of dictatorship, Greece became free and independent for the first time, after decades of foreign interference and oppression by right-wing governments that didn’t care for the people. When, in 1981, Andreas Papandreou, the father of the incumbent prime minister, took power to become the first left-wing prime minister in the history of Hellas, he played into the pressing needs of the people at the time: the need for freedom (everything should be allowed, including demonstrations, powerful unions and ‘free state’ universities where the police wasn’t allowed to venture), the need for national pride, and the need for a caring state. He thought the economy would grow by pumping in money, increasing incomes and creating employment. So he began to borrow.

Papandreou was anything but successful, even though he had been a professor of economics at Berkeley. His strategy would have worked only in a protected economy, but Greece was a member of the EEC. The extra income of the people went straight to consumer goods that were imported from abroad. The money borrowed from abroad flowed right back into those very same countries. Industry in Greece slowly faded. Companies went bankrupt. Northern Europe was stronger and better. The same happened with other countries in Europe’s southern axis. Weaker economies served as a growing market for the stronger economies in the European core. With the introduction of the euro in 2001, this development proceeded even further. Germany and the Netherlands benefited enormously, both through collecting interest on loans and through the growth of their exports.

All in all, Brussels and the European banks gave in to their own drive for profit maximization without any self-restraint, lending some 2,000 billion euros to Ireland, Belgium, Portugal and Spain — and to Greece, while everyone was fully aware that cronyism there still reigned supreme after entrance into the European Union, that the public sector was bursting at the seams, that the business climate was poor, that the political elite on the left and on the right was corrupt, that the rich engaged in mass tax evasion, that the institutions functioned poorly, and that European money was not being used well. If you do that for thirty years, without any checks or sanctions, can you still keep a straight face while blaming the Greeks alone for their mismanagement?

Did Brussels not know by 2009 that the Greek budget deficit was not 6, but 12 percent? Nonsense. Brussels and the banks were simply standing there, looking on and doing business with anyone who all those people who are now being called a “bottomless souvlaki”. As long as the Greek economy kept growing at a remarkable 4-5 percent rate, thanks to the tourism and shipping industries (in which the Greek shipowners are considered the absolute world leaders), nothing could go wrong. The structural instability caused by excessive borrowing remained invisible until the crisis of 2008 did hit Europe, but left Greece untouched for the moment. In 2009, the global shipping industry collapsed as a result of the global crisis. Tourism decreased dramatically. In the spring of 2009, European Commissioner Almunia warned repeatedly that things would go wrong for Greece. Nobody did anything. There were Greek elections in June and September. In such moments, it’s customary for Brussels not to bother a member state. Moreover, the right-wing prime minister at the time, Karamanlis, who was an ally of neoliberal Nothern Europe, felt that support measures could wait. Only in the autumn of 2009, after the “confession” and “Mea Culpa” on the Greek deficit by prime minister Giorgos Papandreou in Brussels, right at the moment when the global crisis was starting to be felt in Greece, did the full extent of the country’s problems emerge. Ever since, the propaganda machine has been running at full speed. Contrary to reality, the Greeks are not just being blamed, but they are suddenly also considered to be Mediterranean profiteers, living like a louse on a sore head, at the expense of the righteous North European taxpayer. The angry statements by EU bosses like Barroso, Trichet, Juncker and Merkel were raining down. Papandreou did not even get time to sort things out. No, Greece should immediately display good behavior. Speculators smelled blood. They openly started betting on a Greek default.

Greece was drained by the markets. It no longer received any credit and had to beg the EU for assistance. Under the leadership of Angela Merkel, the IMF was called in. Tough conditions were set, even harsher than the IMF desired: punishment was enacted. Punishment for what? Punishing Greece is like a perverse confirmation of the EU’s inherent powerlessness, and a confirmation of the fact that the EU is mainly a bureaucratic institution that fails to act politically when it has to in order to stave off catastrophe. The ordinary Greek people are now expected to foot the bill for the extremely high interest repayments to the European banks. Unfortunately, the Greek prime minister started last year what he should have ended with. Taxes have been raised. Salaries were already much lower than in the Netherlands, but they have now been reduced by an additional 15 percent. Social security has been minimized. All kinds of public services have been cut out entirely.  Sharply lower incomes and higher taxes, combined with top-heavy loans, do not only destroy the economy, but also social cohesion. Unemployment has already reached 16 percent. Next year, it will be 22 percent. Greek people have no prospects. Among those under 35 years of age, 37 percent wants to emigrate.

As far as I’m aware, there is not a single Greek who is not aware of the fact that the debt has to be repaid, but they justly demand lower interest rates and longer repayment terms. They also want the cacophony of ominous and hateful statements from European leaders to be stopped, so that Greece can get some air to recover. In a solidary Europe, the question shouldn’t be: how do I get my money back with maximum profit? It should be: how do I help a country get out of a recession for which I am partly responsible, and who will foot the bill for that? In the first place, part of the money should be taken from those responsible for causing this mess — from the elite. The Greeks who have committed fraud for years on end, who evaded their taxes, who obfuscated their money and who speculated irresponsibly, are going free, partly thanks to a recent law on parliamentary immunity. It’s an eyesore to he Greek people that Papandreou has failed to sue even a single corrupt politician, to punish even a single entrepreneur or ship owner, and to recover even a single penny from the billions of euros that have disappeared into various pockets. And in no way does Brussels seem to be pushing for such measures. In fact, on this subject, Brussels has remained silent as the grave. Undoubtedly, this silence serves to disguise other dubious practices — such as the money from Siemens, which lavishly handed out bribes in exchange for a monopoly position at the Athens Olympics of 2004; or Germany, which forced Greece to buy expensive German submarines, which it doesn’t need, at a price twice as high as Turkey had to pay for them; or France, which forced Greece to buy wildly expensive fighter planes in return for its ‘aid’. Indeed, the propaganda of the mainstream media provides Europe and the Netherlands with a convenient scapegoat to exploit.


‘Germany Was Biggest Debt Transgressor of 20th Century’ Economic historian Albrecht Ritschl argues in a SPIEGEL ONLINE interview, that Germany has been the worst debtor nation of the past century.

Ritschl: That may be, but during the 20th century, Germany was responsible for what were the biggest national bankruptcies in recent history. It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe’s headmaster. That fact, unfortunately, often seems to be forgotten.

SPIEGEL ONLINE: What happened back then exactly?

Ritschl: From 1924 to 1929, the Weimar Republic lived on credit and even borrowed the money it needed for its World War I reparations payments from America. This credit pyramid collapsed during the economic crisis of 1931. The money was gone, the damage to the United States enormous, the effect on the global economy devastating.

SPIEGEL ONLINE: The situation after World War II was similar.

Ritschl: But right afterwards, America immediately took steps to ensure there wouldn’t be a repeat of high reparations demands made on Germany. With only a few exceptions, all such demands were put on the backburner until Germany’s future reunification. For Germany, that was a life-saving gesture, and it was the actual financial basis of the Wirtschaftswunder, or economic miracle (that began in the 1950s). But it also meant that the victims of the German occupation in Europe also had to forgo reparations, including the Greeks.

SPIEGEL ONLINE: In the current crisis, Greece was initially pledged €110 billion from the euro-zone and the International Monetary Fund. Now a further rescue package of similar dimensions has become necessary. How big were Germany’s previous defaults?

Ritschl: Measured in each case against the economic performance of the USA, the German debt default in the 1930s alone was as significant as the costs of the 2008 financial crisis. Compared to that default, today’s Greek payment problems are actually insignificant.

SPIEGEL ONLINE: If there was a list of the worst global bankruptcies in history, where would Germany rank?

Ritschl: Germany is king when it comes to debt. Calculated based on the amount of losses compared to economic performance, Germany was the biggest debt transgressor of the 20th century.

SPIEGEL ONLINE: Greece can’t compare?

Ritschl: No, the country has played a minor role. It is only the contagion danger for other euro-zone countries that is the problem.

SPIEGEL ONLINE: The Germany of today is considered the embodiment of stability. How many times has Germany become insolvent in the past?

Ritschl: That depends on how you do the math. During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a “haircut” in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990.

SPIEGEL ONLINE: Really? A default?

Ritschl: Yes, then-Chancellor Helmut Kohl refused at the time to implement changes to the London Agreement on German External Debts of 1953. Under the terms of the agreement, in the event of a reunification, the issue of German reparations payments from World War II would be newly regulated. The only demand made was that a small remaining sum be paid, but we’re talking about minimal sums here. With the exception of compensation paid out to forced laborers, Germany did not pay any reparations after 1990 — and neither did it pay off the loans and occupation costs it pressed out of the countries it had occupied during World War II. Not to the Greeks, either.

SPIEGEL ONLINE: Unlike in 1953, the current debate in Germany over the rescue of Greece is concerned not so much with a “haircut”, but rather an extension of the maturities of government bonds, i.e. a “soft debt restructuring.” Can one therefore even speak of an impending bankruptcy?

Ritschl: Absolutely. Even if a country is not 100 percent out of money, it could still be broke. Just like in the case of Germany in the 1950s, it is illusory to think that Greeks would ever pay off their debts alone. Those who are unable to do that are considered to be flat broke. It is now necessary to determine how high the failure rate of government bonds is, and how much money the country’s creditors must sacrifice. It’s above all a matter of finding the paymaster.

SPIEGEL ONLINE: The biggest paymaster would surely be Germany.

Ritschl: That’s what it looks like, but we were also extremely reckless — and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany’s resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.

SPIEGEL ONLINE: You’re saying that Germany should back down?

Ritschl: In the 20th century, Germany started two world wars, the second of which was conducted as a war of annihilation and extermination, and subsequently its enemies waived its reparations payments completely or to a considerable extent. No one in Greece has forgotten that Germany owes its economic prosperity to the grace of other nations.

SPIEGEL ONLINE: What do you mean by that?

Ritschl: The Greeks are very well aware of the antagonistic articles in the German media. If the mood in the country turns, old claims for reparations could be raised, from other European nations as well. And if Germany ever had to honor them, we would all be taken the cleaners. Compared with that, we can be grateful that Greece is being indulgently reorganized at our expense. If we follow public opinion here with its cheap propaganda and not wanting to pay, then eventually the old bills will be presented again.

SPIEGEL ONLINE: Looking at history, what would be the best solution for Greece — and for Germany?

Ritschl: The German bankruptcies in the last century show that the sensible thing to do now would be to have a real reduction of the debt. Anyone who has lent money to Greece would then have to give up a considerable part of what they were owed. Some banks would not be able to cope with that, so there would have to be new aid programs. For Germany, this could be expensive, but we will have to pay either way. At least Greece would then have the chance to start over.

About Alex Imreh

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One Response to The truth about the Greek Crisis

  1. AK says:

    What is happening to Greece is truly awful. I’m in Britain where it’s quite a miserable situation but I can only imagine how bad it must be in Greece.
    Greece should tell the Eurozone to stick it and then leave.

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