Greece: A Massive Transfer Of Wealth to German Banks

(9 am. – promoted by ek hornbeck)

Is a restructuring of Greek sovereign debt inevitable? What would restructuring entail? Does the current E.U. plan envision restructuring? Is the current plan more concerned re the health of certain European banks than Greece? – kathaa, West Bloomfield, Mich.

Yves Smith: Yes, it is inevitable. The Greek austerity program is the most daunting in modern times. Argentina defaulted under a much less demanding program. The Greek population also appears to understand intuitively the record of Latin American austerity programs, that they are a transfer from the public to the banks, and they do not appear willing to make the depth of sacrifice demanded of them. Many experts believe the euro zone is wasting valuable firepower and credibility on Greece, when it would have done better to restructure Greece now and use any backstop funds for the other euro zone members under stress.

….Unless a country can engineer a very large increase in exports, which usually happens by depreciating its currency, trying to reduce public- and private-sector debt at the same time results in a big economic contraction. That’s happening now in Ireland, where nominal G.D.P. has fallen over 18 percent. A fall of that magnitude makes it even harder to pay off existing debt.


So, France and Germany are basically paying Greece to pay  their own banks. And contracting the Greek (and soon all of southern Europe) economy.  Remember that one of the conditions Germany placed on bailing out their own auto industry, was that the jobs created/saved would be in Germany-not in Spain or somewhere else. Likewise, their various stimulus packages were local as well. But now they’ve forced Greece to cut jobs, cut entitlements and retirement benefits, and raise taxes.

And of course this:

…Papandreou had recently met Sarkozy and French Prime Minister Francois Fillon in Paris. “Mr Fillon and Mr Sarkozy told Mr Papandreou: ‘We’re going to raise the money to help you, but you are going to have to continue to pay the arms contracts that we have with you’,” Cohn-Bendit said.

“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.”…

And Guess what?

The Portuguese have been forced into the “Austerity Plan” as well.

LISBON – The Portuguese government said Monday it would cut spending, delay investment and sell state assets to fix Portugal’s finances just a week after fellow eurozone member Greece took similar unpopular steps.


Exceptional measures taken last year to offset the impact of the economic slowdown, most notably on unemployment and jobs for the young, will also be scrapped, Teixeira dos Santos added.


Privatisation should bring in an additional six billion euros, with the assets involved to be announced on March 25, he said.

Privatization? What a surprise.  And, yes, the Portuguese have a socialist government being forced into this as well.

Next up? Spain, Italy and maybe Ireland. Spain is assured now, because Portugal owes it so much, and the ‘austerity’ will surely kill their economy.

So, who does Greece owe?


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  1. In my comment on gjohnsit’s diary before I said that the small GDP of Greece means this is a fake crisis — which it is.  

    But, I thought that would not lead to the breakup of the Euro. It will. The major powers have engineered this to destroy the southern euro zone (and perhaps the east as well).


    They want poverty level workers to compete with China?


  2. amount of exposure compared to France and Germany.

  3. that is has gone awry.  But it may serve another purpose – huge transfer of wealth to oligarchy & destruction of social safety – as advocated by IMF.

    It’s a horrible time to be a pensioner in Europe but a great time to be a banker.  

    • banger on May 11, 2010 at 4:24 pm

    Either continue neo-liberal economic policies which will slowly lead to peonage of the average person or opt out of the system. And I don’t just mean the Euro, though that would be a start. I believe that these countries need to follow the path of Cuba and abandon the current globalized version of capitalism. I think, ultimately, it must come to that. The current global system is not sustainable at the edges. I don’t believe any country in Europe (other than Britain) would tolerate becoming another United States with relatively high levels of poverty, massive prison populations and militarized and militarist culture.

    The current non-choice indicated by the neo-liberal bailout (increasing the transfer of wealth from the poor to the rich) is not going to change anything–it is a short-term fix made to calm the markets which, in case people don’t realize it, are strictly short-term at this point. They have become gambling casinos that have inched their way into unreality. There is no reason not to believe that a thousand point or a 5,000 point drop might not happen at some point when the plunge-protection team (an ad hoc association of international bankers and finance ministers that serve as bottoms to the market to reassure big-investors) gets caught napping.

    We need societies to begin to create an alternative system. Cuba has done it since the 60’s and shows the essential pattern: invest in education, health-care and communitarian values and thinking outside the box in solving problems. This has worked very well in Cuba. While Cubans, like anyone else, are strongly attracted to the glitter of consumer culture they seem to be grounded in alternative values that show some robustness particularly since they have been opposed and isolated in every way possible by the United States. There is a reason why U.S. policy makers are fanatically opposed to the Cuban regime and it isn’t because of “human rights” abuses.

    Moving away from consumer values and into communitarian values is a path we should all take here. The political/economic problems we face aren’t strictly political they are cultural. Stop the consumer mentality and we will stop the rape of the Earth and discover each other and the splendor of creation.

  4. Individuals are now encouraged to be autonomous, independent, financial entities unto themselves, like mini consumer robots. We go into stores (mostly corporate)and get messages like “earn bonus points”, “special limited time discounts”, “free rewards*”, “personalized club cards”, “guaranteed limited warranties” etc. etc. This is part of our culture. It is so focused on the “self”, that

    considering moral or political issues is secondary. Thus, our culture is secondary and impoverished, a tabloid culture.

  5. if I could just get past that first sentence I would have promoted this today.

    For one thing call outs are rather rude, but for another I’m not quite sure what about gjohn’s position you object to when you quote something he references rather than him.

    Perhaps you could find a way to get around that.

    Also I would put the break below-

    So, who does Greece owe?

    because your graphic eats up a lot of vertical space and I like to keep the title of the previous piece visible.

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