Greek tragedy

Sometimes when I wake up in the morning and listen to public radio, I hear the announcers talking about the debt crisis in Greece. They always talk as if this crisis was created by Greece having too many expensive social programs that help ordinary people.

CommonDreams.org has posted a piece by Walden Bello of Foreign Policy in Focus that offers a different perspective:

Although the welfare-state narrative contains some nuggets of truth, it is fundamentally flawed. The Greek crisis essentially stems from the same frenzied drive of finance capital to draw profits from the massive indiscriminate extension of credit that led to the implosion of Wall Street. The Greek crisis falls into the pattern traced by Carmen Reinhart and Kenneth Rogoff in their book This Time is Different: Eight Centuries of Financial Folly: Periods of frenzied speculative lending are inexorably followed by government or sovereign debt defaults, or near defaults. Like the Third World debt crisis of the early 1980s and the Asian financial crisis of the late 1990s, the so-called sovereign debt problem of countries like Greece, Europe, Spain, and Portugal is principally a supply-driven crisis, not a demand-driven one.

In their drive to raise more and more profits from lending, Europe's banks poured an estimated $2.5 trillion into what are now the most troubled European economies: Ireland, Greece, Belgium, Portugal, and Spain. German and French banks hold 70 percent of Greece's $400 billion debt. German banks were great buyers of toxic subprime assets from U.S. financial institutions, and they applied the same lack of discrimination to buying Greek government bonds. For their part French banks, according to the Bank of International Settlements, increased their lending to Greece by 23 percent, to Spain by 11 percent, and to Portugal by 26 percent.

The frenzied Greek credit scene featured not only European financial actors. Wall Street powerhouse Goldman Sachs showed Greek financial authorities how financial instruments known as derivatives could be used to make large chunks of Greek debt "disappear," thus making the national accounts look good to bankers eager to lend more. Then the very same agency turned around and, engaging in derivatives trading known as "credit default swaps," bet on the possibility that Greece would default, raising the country's cost of borrowing from the banks but making a tidy profit for itself.

If ever there was a crisis created by global finance, Greece is suffering from it right now.