Last Wednesday, public and private sector workers in Greece walked off the job for the second general strike in two weeks. The strikers oppose dramatic cuts in public spending announced by the government in an attempt to reduce Greece’s spiralling deficit. But the protests are falling on deaf ears as the government attempts to negotiate a financial reprieve from the European Union.
Greece is caught in a downward spiral. In October, the new government announced that the country’s budget deficit was twice as large as previously reported — quadruple the eurozone limit of 3% of GDP. When the financial markets realized that Greece was so hard up, lenders started charging even higher interest rates on the money Greece needs to borrow to service its debt.
Economist Richard Parker, a Harvard economist and advisor to Prime Minister George Papandreou describes the financial feeding frenzy that ensued:
But traders and speculators, sensing the size of the task the government faces, have forced interest rates on Greek bonds to record highs, betting that the country is close to default. (The traders’ role is itself ripe with ironies because Goldman Sachs and other top Wall Street firms had earlier in the decade helped Greek governments move liabilities off state budgets by constructing the same sort of offshore entities and complex derivative swaps that were at the heart of the US banking system’s collapse a year and a half ago. Revelations of the deals by the New York Times generated new attacks on the Papandreou government, despite the fact that it was his government that had exposed the dealings.)
In other words, banks like Goldman Sachs, whose underhanded dealings created a massive shadow debt, are now betting that Greece will founder because of it. They made money coming and going. Zach Carter, financial columnist for the Media Consortium writes:
Goldman was not interested in fair play — it was interested in making money off of the Greek government in any way it could. If that meant actively sabotaging the market by hiding important information, well, Goldman didn’t care.
As usual, ordinary people are paying the price. In response to the debt crisis, the government cut public sector salaries, froze hiring, and raised the retirement age for public sector workers.
That’s not good enough, in the eyes of the international community. The European Union is organizing a rescue package for Greece, but help will come at a cost. Today, the EU Commissioner for Economic and Monetary Affairs Olli Rehn met with Finance Minister George Papaconstantinou. After the meeting Rehn publicly called upon the government to announce even more cost-cutting measures.
“The government will do whatever it takes [to cut the deficit],” Papaconstantinou said dutifully.
The Greek crisis illustrates how the financial markets have eroded the power of organized labor and even the elected officials of sovereign nations.
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