Can Greece and EU Make Amends?

Exclusive: The after-shocks from the Wall Street crash of 2007-08 continue to rattle international stability, with Greece now rejecting never-ending demands for more belt-tightening and raising the specter of a splintered European Union, as ex-U.S. diplomat William R. Polk explains.

By William R. Polk

The Greek people have not only spoken; they have shouted. More than six in ten voters said “no.” So what does that mean and what will happen next?

What it means is twofold: Domestically, it means that the Greek people in vast numbers refuse to accept the verdict of the European Central Bank, the International Monetary Fund and the creditor nations. That verdict would have amounted to a generation or more of continued suffering for the Greeks in pursuit of the receding goal of repaying the creditors for their loans.

Greek Prime Minister Alexis Tsipras (center) with French President Francois Hollande (left) and German Chancellor Angela Merkel (right).

Greek Prime Minister Alexis Tsipras (center) with French President Francois Hollande (left) and German Chancellor Angela Merkel.

As German Chancellor Angela Merkel has said, loans must be repaid. In principle, of course, she is right, but there are extenuating circumstances, including that the lenders baited the trap in which the Greeks have fallen. The lenders offered loans when they should have known that the borrowers had little chance of repaying them.

Sometimes in Greece as, for example, in Latin America bank officers encouraged borrowing because they got bonuses for generating business, a common banking practice. Other loans were made for political purposes. Some also had “security” aspects.

Collectively, the Greeks are “guilty” of accepting the loans. They should have known how hard it would be to repay them. Some, prudently, refused, but when the loans temporarily created a minor boom, almost everyone was swept up in the euphoria.

After years of warfare, poverty and turmoil, it seemed that a new day was dawning. A “bubble” of expectation seemed to have changed the rules of the game. So both the government and the people plunged into the financial trap.

And the Greeks were not alone. Other heavy borrowers included the governments and peoples of Spain, Portugal, Italy and Ireland. This is what makes the current crisis more than just a Greek problem.

Internationally, there are already signs that lenders are reacting to the Greek vote in panic. If one country that borrowed heavily is defaulting, they ask, which other heavily-borrowing country is likely to be next? Many have suggested it will be Spain. Apparently a number of lenders believe that popular Spanish movements resemble the coalition of groups supporting Greek Prime Minister Alexis Tsipras’s Syriza. The bankers may not particularly care about the politics or ideology, but they fear the turmoil.

Bankers are usually noted for their prudence (especially when the risks of non-payment are readily apparent). And prudence argues for either making no new loans or even calling in those already made. This could dramatically harm the Spanish economy where already in this year nearly one in four workers could not find a job.

So, it’s clear that the time of danger is here. What about the time for statesmanship? Ironically, the lenders do not seem to have yet understood that the “No” vote could save the Euro, save Greece and potentially save Spain, Italy, Portugal and Ireland. Why is that so?

It is so because having secured his support at home, Prime Minister Tsipras can now afford to negotiate a sensible deal. And, having seen that Tsipras survived what amounted to a vote-of-no-confidence and would have meant his political removal if he had lost, Chancellor Merkel and French President Francois Hollande now realize that they must negotiate a sensible deal with Tsipras if they are to save the Euro and potentially the European Union.

What would be the basis of a compromise? While there are details of considerable complexity, the heart of the matter is reasonably simple:

First, Greece cannot repay the huge debt in the foreseeable future. That would have been true even if the Greeks had voted “yes.” Put starkly, the IMF, the European Central Bank and other creditors must forgive a large part of the Greek debt. They probably will choose to disguise “forgiveness” by calling it an extension into the remote future.

This is essentially what the Greeks and particularly Finance Minister Yanis Varoufakis have demanded. However, to make such a deal more acceptable to the Merkel-Hollande bloc, Varoufakis recognized that his presence was divisive and resigned, but his move will not change the terms of the possible compromise. It must be along the lines that he had marked out.

Second, if Greece is to survive in some acceptable manner and possibly even avoid a civil war the country will need additional emergency financing. Tsipras’s electoral victory will make it possible for him to bend slightly but not much on such issues as welfare payments.

At the same time,  public desperation as funds dry up and even food becomes scarce will impel him to compromise as much as he can to stay in office. Meanwhile, the lenders will find strong incentives to help because a total collapse of the Greek economy raises the specter of collapse in other European Union economies and the ultimate danger of the splintering of the European Union and the collapse of the Euro.

Let us hope that in the days and weeks ahead true statesmen (or stateswomen) will take the lead.

William R. Polk is a veteran foreign policy consultant, author and professor who taught Middle Eastern studies at Harvard. President John F. Kennedy appointed Polk to the State Department’s Policy Planning Council where he served during the Cuban Missile Crisis. His books include: Violent Politics: Insurgency and Terrorism; Understanding Iraq; Understanding Iran; Personal History: Living in Interesting Times; Distant Thunder: Reflections on the Dangers of Our Times; and Humpty Dumpty: The Fate of Regime Change.

30 comments for “Can Greece and EU Make Amends?

  1. Zachary Smith
    July 8, 2015 at 22:21

    I don’t understand much of what’s going on with the Greece situation, but am edging towards thinking they ought to default on all the loans and be done with it.

    Obviously the suffering will be awful, and few or any of the Europeans will lift a finger to help.

    There are so many wild cards that I don’t even know if it could be done.. The Greek military is probably a wholly owned subsidiary of the US of A, and might block any such effort.

    Still, a horrible ending (with at least a prospect of recovery) is better than horrors without end – what Germany, the European bankers, and the IMF have in mind for Greece.

  2. Abe
    July 7, 2015 at 23:27

    Prime Minister Alexis Tsipras allows the Greek people to decide their own fate via a democratic referendum. That’s enough to send the troika – the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF) – into a paroxysm of rage. Here, in a nutshell, is everything one needs to know about the EU “dream”.

    Tsipras is, of course, right; he had to call a referendum because the troika had delivered: “an ultimatum towards Greek democracy and the Greek people.” Indeed, “an ultimatum at odds with the founding principles and values of Europe.”

    But why? Because the apparently so sophisticated politico-economic web of European “institutions” – the EC, the Eurogroup, the ECB – had to come up with a serious political decision; and due, essentially, to their nasty mix of greed and incompetence, they were incapable of making it.

    At least EU citizens now start to get the picture on who their enemy is: the non-transparent “institutions” who supposedly represent them.The – so far — 240 billion euro bailout of Greece (which featured Greece being used to launder bailouts of French and German banks) has yielded a whole national economy shrinking by over 25%; widespread unemployment; and poverty soaring to unprecedented levels. And for the EU “institutions” – plus the IMF – there was never any Plan B; it was the euro-austerity way – a sort of economic Shock and Awe — or the (desperation) highway. The pretext was to “save the euro”. What makes it even more absurd is that Germany simply couldn’t care less if Greece defaults and a Grexit is inevitable.


    no one knows what happens after July 5. Grexit remains a distinct possibility. Projecting further, and taking a leaf from Wagner’s Ring, it also seems clear that the euro “institutions” themselves have been adding fuel to the fire that may eventually consume the eurozone – a direct consequence of their zeal to immolate the Greeks just like Brunnhilde.

    Athenian Democracy vs. Neoliberal Gods — Pepe Escobar
    By Pepe Escobar

  3. Abe
    July 7, 2015 at 17:17

    For decades, Greeks have suffered governments that are both corrupt and dishonest. The election of SYRIZA changed all that: the government is now merely dishonest.

    Our new SYRIZA Prime Minister, Alexis Tsipras, correctly called the austerity plan “blackmail.” However, before Sunday’s vote, Tsipras told the nation a big fat fib. He said we could vote down the European Bank’s plan but keep the European Bank’s coin, the euro. How? Tsipras won’t say; it’s part of a policy ploy his outgoing finance minister Yanis Varoufakis calls “creative ambiguity.” To translate: Creative ambiguity is Greek for “bullshit.”

    Sorry, Alexis, if you want to use the Reich’s coin you have to accept the Reichsdiktat.

    Not a coin, a virus

    Tsipras’ claim that Greece can keep the euro while rejecting austerity is crazy-talk. The fact is that German Chancellor Angela Merkel, the Cruella De Vil of the Eurozone, will ignore the cries of the bleeding Greeks and demand we swallow austerity–or lose the euro.

    But, so what if we lose the euro? The best thing that can happen to Greece, and should have happened long, long ago, is that Greece flee the Eurozone.

    That’s because it is the euro itself that is the virus responsible for Greece’s economic ills.

    Indeed, the sadistic commitment to “austerity” was minted into the coin’s very metal. We’re not guessing. One of us (Palast, an economist by training) has had long talks with the acknowledged “father” of the euro, Professor Robert Mundell. It’s important to mention the other little bastard spawned by the late Prof. Mundell: “supply-side” economics, otherwise known as “Reaganomics,” “Thatcherism” – or, simply “voodoo” economics.

    The imposition of the euro had one true goal: To end the European welfare state.

    For Mundell and the politicians who seized on his currency concept, the euro itself would be the vector infecting the European body politic with supply-side Reaganomics.

    GREECE’D: We Voted ‘No’ to slavery, but ‘Yes’ to our chains
    By Michael Nevradakis in Athens with Greg Palast in New York

    • Gordon Pratt
      July 7, 2015 at 22:19

      I admire the clarity of many of your comments on this page.

      Why is it crazy to say Greece can reject austerity and keep the euro?

      Say Greece repudiates its debts. The ECB must then decide whether to provide liquidity to Greek banks or not. If yes, the ECB is lending Greece more money.

      If no, then Greece must find someone else to provide euros. Greece may approach the US Federal Reserve for a loan. If Washington decides Russia will provide the needed money if the US does not, then the Federal Reserve may say yes.

      If no one will lend Greece Euros then they must leave the Eurozone. I completely agree with you that this is a highly desirable result.

      But as Greece prospers outside the Eurozone (but still in the EU) Portugal, Spain, Italy and Ireland cannot fail to notice. This risks a domino effect with multiple Eurozone exits.

      Multiple Eurozone exits would mean a soaring euro and depression in the Eurozone, less so in the EU.

      So the ECB must lend Greece more money to keep it in the Eurozone and to keep the euro low.

      What do you think?

  4. Abe
    July 7, 2015 at 17:01

    Here’s the problem when debtor/importer eurozone members such as Greece go broke and default: Who is left standing to buy all the mercantilist exporters’ goods? Ultimately, much of those goods were purchased with debt, and when debtor nations default, the credit spigot is turned off: no more borrowing, no more money to buy Dutch, German and Chinese exports.

    Although the euro was supposed to create efficiencies by removing the costs of multiple currencies, it has had a subtly pernicious disregard for the underlying efficiencies of each eurozone economy.

    Though German wages are generous, the German government, industry and labor unions have kept a lid on production costs even as exports leaped. As a result, the cost of labor per unit of output — the wages required to produce a widget — rose a mere 5.8% in Germany in the 2000-09 period, while equivalent labor costs in Ireland, Greece, Spain and Italy rose by roughly 30%.

    The consequences of these asymmetries in productivity, debt and trade deficits within the eurozone are subtle. In effect, the euro gave mercantilist Germany a structural competitive advantage by locking the importing nations into a currency that makes German goods cheaper than the importers’ domestically produced goods.

    Put another way: By holding down production costs and becoming more efficient than its eurozone neighbors, Germany engineered a de facto “devaluation” within the eurozone by lowering the labor-per-unit costs of its goods.

    The euro has another deceptively harmful consequence: The currency’s overall strength enables debtor nations to rapidly expand their borrowing at low rates of interest. In effect, the euro masks the internal weaknesses of debtor nations running unsustainable deficits and those whose economies had become precariously dependent on the housing bubble (Ireland and Spain) for growth and taxes.

    Ragin’ Contagion: When Debtors Go Broke, So Do Mercantilist Exporters
    By Charles Hugh Smith

  5. F. G. Sanford
    July 7, 2015 at 13:49

    I want to be as jubilant and optimistic as everyone else seems to be. But I have never believed Yanis Varoufakis was an intuitive financial genius. The Greek people voted nay, but the eyes tell another story. Yanis, or Janus – the two-faced emblem representing duplicity – has those shifty eyes. I fear the next step in this saga will be political destabilization and regime change. A proper strategy would have anticipated a ‘Grexit’: the drachmas should have been printed by now and ready for the inevitable. The unelected oligarchs of the EU and the architects of “the institutions” – so called to create an image of legitimacy out of nothing more than a fascist rebirth of a financial Euroreich – have no intention of allowing their hegemony to be usurped by a bunch of unemployed upstarts. The whole Euroreich project is aimed at eliminating economic civil rights. Raising retirement age prevents the young from finding jobs. Reduced pensions insure that the elderly cannot pass their wealth to their children. Tax structures spare the wealthy of any burden, while the poor and middle class are stripped of benefits. Elimination of the ‘welfare state’ insures that only the rich receive financial benefits through rent seeking, debt service, privatization and usury. All of this amounts to unearned income at the expense of the poor. Why would he resign at the pinnacle of success? Probably to get out of town before the total collapse. He successfully engineered a financial shipwreck from which Grexit is the only escape. Before he left, he made sure there were no lifeboats. I hope I’m wrong – but the game here is more serious than optimists seem to believe. The world’s cumulative debt is $200 Trillion, and the world’s entire GDP is only $60 Trillion. That doesn’t count the unsecured derivatives generated by the International Monetary Reich, which may exceed $300 Trillion. The math just doesn’t work. But I do hope I’m wrong.

    • Abe
      July 7, 2015 at 14:03

      At this point it indeed looks as if Varoufakis’ role has been to act as the Western bankers’ Trojan Horse inside the Greek government, to prepare Greece and the Greek people for the slaughter, all the while posing as the tire-less fighter for Greek interests, all without a neck tie, of course.

      As the former US Assistant Treasury and critic of the US foreign economic policies of recent years, Paul Craig Roberts recently described it, “Greece’s creditors, the EU and the European Central Bank…are determined to establish the principle that they can over-lend to a country and force the country to pay by selling public assets and cutting pensions and social services of citizens. The creditor banks then profit by financing the privatization of public assets to favored customers.The agenda of the EU and the central bank is to terminate the fiscal independence of EU member states by turning tax and budget policy over to the EU itself.”

      Roberts goes on to state that the Greek “sovereign debt crisis” is being used to create a precedent that will apply to every EU member government. The member states will cease to exist as sovereign states. Sovereignty will rest in the EU. The measures that Germany and France are supporting will in the end terminate their own sovereignty. “

      How did Greece and the European Union’s Eurozone countries get in such a crisis? The energy that vibrates through all of Europe right now is not of love for fellow human beings, but of hate. There is hate from the Germans against what they are convinced are lazy and tax-cheating ordinary Greeks. They have been fed that image by controlled mainstream media itself in turn controlled by the American oligarchs and their think-tanks. There is hate from the EU Commission and the EU leadership against Greece for creating what they see as the existential crisis of the EU. There is hate from German Chancellor Merkel for ruining her legacy, perhaps.

      Above all, there is hate towards the Greek people from their own Greek oligarchs.

      What Stinks about Varoufakis and the Whole Greek Mess?
      By F. William Engdahl

    • Abe
      July 7, 2015 at 14:06

      “I can see the gleam of hatred in their eyes”

      Notice who’s pounding their knuckles on the table right now.

    • Abe
      July 7, 2015 at 14:27

      “Well, after the Hanseatic League was formed…”

    • Abe
      July 7, 2015 at 14:57

      “Well, after the new Hanseatic League was formed…”

      Several cities still maintain the link to the Hanseatic League. Dutch cities including Groningen, Deventer, Kampen and Zutphen, and a number of German cities including Bremen, Demmin, Greifswald, Hamburg, Lübeck, Lüneburg, Rostock, Stade, Stralsund and Wismar still call themselves Hanse cities.

      Lübeck, Hamburg, and Bremen continue to style themselves officially as “Free Hanseatic Cities.”

      For Lübeck in particular, this anachronistic tie to a glorious past remained especially important in the 20th century. In 1937 the Nazi Party removed this privilege through the Greater Hamburg Act after the Senat of Lübeck did not permit Adolf Hitler to speak in Lübeck during his election campaign. He held the speech in Bad Schwartau, a small village on the outskirts of Lübeck. Subsequently, he referred to Lübeck as “the small city close to Bad Schwartau.”

      After the EU enlargement to the East in May 2004, some wrote about the resurrection of the Baltic Hansa.

      A decade on the EU faces cascading self-manufactured crises, and “No-Longer-Saint-Putinsberg” is playing both ends (Nordstream and Turkish Stream) against the disappeared middle.

    • Joe Tedesky
      July 7, 2015 at 15:48

      F.G. I do appreciate your skepticism, and how reluctant you maybe to get your hopes up. The one reason I feel there maybe hope is those 61% of the Greek people who had voted ‘NO’. I mean would this make them more determined to make their exit from the Euro a success for Greece? If someone feels they have some skin in the game, normally that makes that someone work harder to make things work. Being involved could be a good thing, right?

      The point you made about a coup is to hard to argue with. Although, how clever would this coup be to go unnoticed? With all that is going on with the back and forth between Europe and Greece it would take some smooth moves to make a government over throw look natural. Once again that 61% may come in handy. Then again I’m talking about spy agencies and NGO’s who stop at nothing to get what they want. So, let’s just hope for the best.

      • Abe
        July 7, 2015 at 17:03

        How clever would a coup in Ukraine be to go unnoticed?

        • Joe Tedesky
          July 7, 2015 at 22:30

          Oh yeah!

        • Joe Tedesky
          July 7, 2015 at 22:31

          Oh yeah! Forgot that one.

          • Abe
            July 7, 2015 at 23:34

            I’m sure proconsul Vickie Nuland can scare up a couple extra billion to “promote Greece to the future it deserves”, aka “Fuck the EU” the Greek way.

  6. Abe
    July 7, 2015 at 13:26

    The Greek Economy

    The Way Forward for Europe

    European Debt Crisis

    How does the financial system works

    For 25 years, John Clarke and Bryan Dawe have been engaged in discourse on a range of issues. John pretends to be someone he isn’t pretending to be and Bryan behaves with grace under pressure. These interviews appear each week on television, radio and online and several collections have been released on CD, DVD and in book form.

  7. Abe
    July 7, 2015 at 12:45

    If Greece gets a “haircut” on their debt, other European nations would want the same and that would cause massive chaos in the derivatives markets.

    But if Greece does not get a deal and ends up leaving the eurozone, that will cause bond yields to go crazy all over Europe and that would also cause tremendous chaos in the derivatives markets.

    So much depends on keeping this system of legalized gambling that we call “derivatives trading” stable. We have allowed the global derivatives bubble to become many times larger than the GDP of the entire planet, and in the end we will pay a great price for this foolishness.

    Every pyramid scheme eventually collapses, and this one will too.

    But the difference with this pyramid scheme is that it is going to take the entire global financial system down with it.

    The German Siege Of Greece Begins (No, This Is Not A Repeat From 1941)
    By Michael Snyder

  8. Mark
    July 7, 2015 at 06:14

    Like some of the mega-banks, Greece is too big for banks and europe to allow to fail.

    A good historical perspective on indebtedness can be found here:

    “From “Usury” to “Financialization””

    “What was condemned as usury in the Middle Ages today goes by the more benign term “financialization” – turning public commodities and services into “asset classes” from which wealth can be siphoned by rich private investors. Far from being condemned, it is lauded as the way to fund development in an age in which money is scarce and governments and people everywhere are in debt.”

  9. Joe Wallace
    July 7, 2015 at 04:40

    From the article:
    “Sometimes in Greece – as, for example, in Latin America – bank officers encouraged borrowing because they got bonuses for generating business, a common banking practice.”
    “Bankers are usually noted for their prudence (especially when the risks of non-payment are readily apparent). And prudence argues for either making no new loans or even calling in those already made.”
    “. . . Greece cannot repay the huge debt in the foreseeable future. That would have been true even if the Greeks had voted ‘yes.’ Put starkly, the IMF, the European Central Bank and other creditors must forgive a large part of the Greek debt. They probably will choose to disguise ‘forgiveness’ by calling it an extension into the remote future.”

    As we’ve seen, debtors are punished for failing to repay. Are there no penalties for creditors who engage in reckless lending?

    • Brad Owen
      July 7, 2015 at 06:03

      Yes there is punishment for for reckless & criminal, “loan sharking” creditors. It’s called The Glass-Steagall Act, and Bankruptcy Reorganization (wherein fraudulent debts are thrown out, and denied consideration as “assets”). There is a move to get it re-installed on the Law books…and installed World-wide. The RICO Act might can come into play, too.

      • Brad Owen
        July 7, 2015 at 06:06

        Of course, The People must recapture their own Government from the Banksters, like Syriza did in Greece, in order to seek Redress of these Grievances.

      • Roberto
        July 7, 2015 at 19:25

        Good point Brad.

  10. Thomas Howard
    July 7, 2015 at 00:01

    European Union can’t let Greece…leave.

    That would be like the Union allowing the Confederate States leave.

    They have already proven that they will kill and destroy you…to protect the Union.

    The wife with black eyes wants to separate, divorce, or just get away…but no, the big man loves her, and he will kill her before he lets her go.

    All out of love for the union of course.

    • Abe
      July 7, 2015 at 13:37

      BINGO! The world banking system utilizes Neo-Confederate economics.

      Principle 1: The slaves are your property because you “invested” in them.

      The world banking system is fixin’ for war to protect its “freedom” to own slaves.

      All out of love for the Confederacy, of course.

  11. Bill Jones
    July 6, 2015 at 23:43

    One hopes not.

    The transfers of powers from at least nominally elected representatives of the people to un-elected transnational governing bodies is the the essence of Bush the Wrinkled’s “New World Order” and must be resisted.

    • Roberto
      July 7, 2015 at 01:45

      I liked Greece when it was a free country. I’d like to see it that way again. Pay the IMF back in drachma!

  12. July 6, 2015 at 21:18

    You said: “Collectively, the Greeks are ‘guilty’ of accepting the loans. They should have known how hard it would be to repay them. Some, prudently, refused, but when the loans temporarily created a minor boom, almost everyone was swept up in the euphoria.”

    You can’t be even remotely serious about that statement. The Greek people had no idea that they were being obligated in back rooms by a bunch of sleazy bankers and politicians. They couldn’t refuse an obligation already made. “Collective guilt” is hardly a palatable concept in this situation (or any that I know of regarding sovereign states).

    The IMF report of June 26 showed a rational path to solving this problem. It included debt relief, concessional interest rates, and hair cuts for lenders. The EU negotiators had the same data and analysis IMF had but never put debt relief or other IMF report recommendations on the table. (BTW, Does the the German people assume “collective responsibility” for the bad faith negotiations of their rulers?

    The loans to Greece were made and accepted in bad faith. They are, therefore, not obligations of the Greek people. Hopefully, Russia and China will step in and provide real relief. In the mean time, Greece does have some options that might show the EU debt masters what happens when your unfairly and illegally target an entire nation:

    The No vote is very important and entirely justified

  13. Lisa
    July 6, 2015 at 21:16

    “Can Greece and EU Make Amends?”. Nope.

    “Let us hope that in the days and weeks ahead true statesmen (or stateswomen) will take the lead.”. They won’t.

    The highest probability outcome now is a US/German/EU/UK sponsered coup. If John Helmer is right, then one was planned for just after the vote, but the massive majority for NO has stalled that.

    That just means a change in plans and another attempt will be tried soon with different tactics.

    • riva enteen
      July 6, 2015 at 21:34

      Germany was forgiven its debt after WWII, and it was the enemy. That point should be reiterated.

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