Greek lesson: EU is bad for the people

By Alex Davidson

The situation now faced by Greece demonstrates with great clarity that the European Union (EU) is undemocratic, unreformable and a major enforcer of failed neo-liberal capitalist policies.

The Greek government has now signed up to a Third Memorandum with the Troika (European Commission, European Central Bank and the International Monetary Fund), which puts the country into an even worse situation than it already was.

Days after the Greek people voted ‘NO’ in their referendum the Greek government agreed to even greater austerity and a further diminution of the rights of the Greek people. The new deal was even more punitive that that earlier on offer.

The appalling treatment of the Greeks is a big lesson for the people of Britain as we approach an In-Out referendum. The EU cannot be negotiated with from inside as the Greeks have learned. The EU structures are undemocratic and dictatorial and increasingly Germany dominates this capitalist club. Accession to the EU has been disastrous for the former Eastern European socialist countries as well as for the PIGS (Portugal, Ireland, Greece and Spain), whose people have paid for their banks to be bailed-out. Although the main parties in Britain, from the Tories to the SNP, will campaign for a YES vote, millions of people will not be convinced because of their experience and the knowledge of what happened in Greece.

From the election of the Syriza government through to the Greek referendum, the Eurogroup never wavered from its position that the austerity programme agreed to by previous Greek governments must be adhered to.  Dr Wolfgang Schauble, Germany’s Finance Minister and the architect of the deals Greece signed in 2010 and 2012, insisted on this throughout.

The Eurozone pre-emptively dismissed the referendum and in the meantime the Eurogroup had taken steps to protect its banks even if the Greek banks defaulted.

Greece has been given no debt relief and in borrowing more money and therefore paying more interest the debt is destined to increase.

Sham negotiations

The five months of negotiation were a sham. As early as February 2014, Greek Finance Minister, Yanis Varoufakis accused the ‘creditor’ governments of a lack of flexibility in the negotiations. After his resignation on the evening (6 July) of the referendum result, he went further and labelled the negotiations ‘a set-up’.

He said “the other side insisted on a ‘comprehensive agreement’, which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything.”

He suggested that Greece’s creditors had a strategy to keep his government busy and hopeful of a compromise, but in reality they were slowly suffering and eventually desperate. Varoufakis added, “They would say we need all your data on the fiscal path on which Greece finds itself, all the data on state-owned enterprises. So we spent a lot of time trying to provide them with it and answering questionnaires and having countless meetings.”

“So that would be the first phase. The second phase was they’d ask us what we intended to do on VAT. They would then reject our proposal but wouldn’t come up with a proposal of their own. And, then before we would get a chance to agree on VAT, they would shift to another issue, like privatisation. They would ask what we want to do about privatisation: we put something forward, they would reject it. Then they’d move onto another topic, like pensions, from there to product markets, from there to labour relations…it was like a cat chasing its own tail.” 1

Harsh conditions

When five years previously the Greek crisis began and the EU stepped in, it was not the kind of help one would have wanted. Joseph Stigletz, formerly senior vice-President and Chief Economist of the World Bank, and Martin Guzman wrote, “The initial proposals had Germany and other ‘rescuers’ actually making a profit out of Greece’s distress, charging a far higher interest rate than their cost of capital. Worse they imposed conditions on Greece  - changes in its macro- and micro-policies – that would have to be made in return for the (bail-out [Ed]) money .”

“Such conditionality was a standard part of the lending practices of the IMF and World Bank…There was an element of neo-colonialism: the old White Europeans once again telling their former colonies what to do. ” 2

The IMF and World Bank’s ‘structural adjustment’ programmes in Zimbabwe and Argentina are worth recalling in this regard, with disastrous consequences for the peoples of those countries.

These years of blackmailing Greece and demanding ever more austerity has led to a catastrophic economic depression with around 30% unemployment (more than 50% youth unemployment), slashed salaries and pensions, huge cuts in the public sector and vast inequality between the rich and poor. The economy has been reduced by 25%.

Those saved by the bail-outs were not the people of Greece but German and French banks.

This latest Memorandum will enlarge Greek debt and make a bad situation for the Greek people even worse. The provisions of the new deal include:

  • An additional increase of the VAT rates, transferring packaged food and other items of mass popular consumption to the highest rate of 23%, the abolition of tax exemptions for farmers, a significant increase in VAT for the islands.
  • Maintenance of the anti-social-security measures in their entirety which reduce pensions, increase the retirement age, exempt employers from social-security contributions.
  • The introduction of new measures that abolish the remaining early retirements, establishing a single retirement age of 67, abolition of the benefits for pensioners with very low pensions, increase in workers’ social-security contributions, merging of the social-security funds with a race to the bottom in terms of rights.
  • The freezing of collective agreements, the maintenance of reduced wages and also additional new anti-worker measures in the name of adaptation to the EU directives for the expansion of individual contracts between workers and employers, the reinforcement of part-time and temporary work, flexible labour relations.
  • Maintenance of the privatisations that have taken place and the promotion of new ones, in the ports, 14 regional airports, the railways, the company that manages natural gas.
  • The creation of a mechanism for mortgaging and selling public property in order to raise 50 billion Euros to repay the loans. The suggested mechanism for selling off Greek public assets, according to Wolfgang Schauble, is that they “shall be transferred to an existing external or independent fund like the Institute for Growth in Luxembourg.”  The Institute for Growth was jointly established in 2013 by a previous Greek government and KFW, the German Development Bank. Schauble is the Chairman of the Board of KFW.
  • The creation of primary surpluses of 1% for 2015, 2% for 2016, 3% for 2017, 3.5% for 2018, and the implementation of a mechanism to automatically cut salaries, pensions, social spending if there is divergence from the fiscal goals.

Inter-Imperialist rivalries in Europe

There have been differences between the organisations of the Troika and between the positions of the United States and Germany. These reflect the differing approaches to handling the financial crisis and also inter-imperialist rivalries.

There is no disagreement among the capitalist countries that it is the working people who should pay to save the banks. The differences are over tactics as to how the situation should be handled.

Timothy Geithner, US Treasury Secretary (2009-2013), met with Wolfgang Schauble on the German island of Sylt in the North Sea in July 2012, and in his book ‘Stress Test’ published at the end of 2014, revealed that the German Finance Minister had presented him with a plan to kick Greece out of the Eurozone. 3

This, according to the German Finance Minister, would allow Germany to provide the financial support necessary to the Eurozone as the German people would no longer perceive the assistance as a “bailout of the corrupt and profligate Greeks.” Furthermore, according to Schauble’s logic, a Greek exit would scare the rest of Europe enough for them to commit to providing sufficient financial assistance in order to prevent the system from collapsing.

Geithner called the idea ‘frightening’, writing that he felt that it would create a crisis of confidence that would be difficult to contain regardless of how much money the Europeans subsequently pledged to shore up bankrupt states. He added that he could not see why the Germans would feel better about bailing out Spain or Portugal than they would Greece. 

In the book Geithner also once again highlights the disagreement between the Americans and Europeans on how the debt crisis should have been handled at its outset in 2010. While European lenders remained doggedly committed to austerity Geithner writes he felt that imposing aggressive austerity too soon in Greece would be counterproductive as it would depress the economy and tax revenue, ultimately increasing the deficit.

German hegemony

The United States is wary about German hegemony over Europe; so besides the differences over how to deal with Greece there are other differences including over Ukraine. The negotiations between Germany, France and Russia, which led to the Minsk Agreement over Ukraine, excluded Britain and the United States.  The United States and NATO continue to gear up for war while Germany would prefer to integrate Ukraine into the EU and control it through that mechanism.

Membership of the EU has been bad for many countries including Greece and bad for all workers throughout Europe. It has been good for capital but not for labour.

The referendum debate in Britain will not be framed in this way by the capitalist media nor by the main political parties but, then, all of them are defenders of capitalism.   

It is worth recalling that on a British exit from the EU, Wolfgang Schauble argued in 2014 that Britain’s EU membership was particularly important to Germany as both countries share a market-oriented reform approach on many economic and regulatory questions. 4

What that means is that weaker capitalist countries would, like Greece, have to abide by EU diktat, privatisation would be endemic and workers throughout Europe would have their rights and conditions further reduced whilst capitalism reigns supreme.


1 Yanis Varoufakis interview with New Statesman, 13 July 2015

2  Siglitz Joseph E and Guzman, Martin “Argentina shows Greece there may be life after default”, The World Post 1 July 2015

3  Geithner, Timothy, “Stress Test”, 2014

4   Financial Times, 30 June 2014