Marshall Auerback: Greece and the Rape by the Rentiers

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Economic Perspectives

Here’s the draft of the supposed agreement to “sort out” the Greek debt problem once and for all. According to Bloomberg, here are the essentials:

• Greece’s 2012 GDP will shrink by as much as 5%.

• Greece is expected to return to growth in 2013.

• Greece will cut 15,000 in state jobs in 2012.

• Minimum wage will be cut by 20 percent.

• There will be no increase to sales tax.

• The government will cut medicine spending will fall from 1.9% to 1.5% and merge all auxiliary pension funds.

• It will also sell stakes in six companies—in particular, energy companies and refineries.

Of course, the current thrust of fiscal policy will almost certainly guarantee that there still will be a default, involuntary or otherwise, in spite of this agreement. If you don’t have a mechanism to allow growth, then how can the Greeks service their debt, even with the reduced debt burden?

Perhaps that’s the idea. Make the deal so miserable for the Greek people that the Spanish, Portuguese, Irish and Italians don’t even begin to think of trying to get a similar haircut on their debt.

Certainly, the deficit reduction won’t come. It can’t when you deflate a rapidly declining economy into the ground. Common sense suggests that a drop in private income flows while private debt loads are high is an invitation to debt defaults and widespread insolvencies.

Even with all of the concessions, the euro bosses have not officially signed off on the agreement:

• Finance ministers of the 17-nation euro zone arriving for talks in Brussels warned there would be no immediate green light for the rescue package and said Athens must prove itself first.

• “It’s up to the Greek government to provide concrete actions through legislation and other actions to convince its European partners that a second program can be made to work,” EU Economic and Monetary Affairs Commissioner Olli Rehn said.

• German Finance Minister Wolfgang Schaeuble, whose country is Europe’s biggest paymaster, told reporters: “You don’t need to wait around because there will be no decision (tonight).”

• Greek Finance Minister Evangelos Venizelos flew to Brussels after all-night talks involving Prime Minister Lucas Papademos, leaders of the three coalition parties and chief EU and IMF inspectors left one sensitive issue – pension cuts – unresolved.

It is also worth pointing out that Greece’s pension payments on a per capita basis are amongst the lowest in Europe. Still, apparently, this plunder hasn’t gone far enough The Greek people must feel like Sabine Women right now.

Game, set and match to the Troika.

While we’re at it, let’s address this “Greeks as tax cheats” canard once and for all. Greece’s tax revenue from VAT collapsed by 18.7pc in January from a year earlier. As Ambrose Evans Pritchard noted:

Nobody can seriously blame tax evasion for this. It has happened because 60,000 small firms and family businesses have gone bankrupt since the summer.

The VAT rate for food and drink rose from 13pc to 23pc in September to comply with EU-IMF Troika demands. The revenue effect has been overwhelmed by the contraction of the economy.
Overall tax receipts fell 7pc year-on-year.

We’re one step closer to ensuring that the birthplace of democracy becomes a form of national indentured servitude. That is of course, unless Greece regains some modicum of self-respect and tells the Troika to take a hike and leaves the euro zone.

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  1. Jack Mullen

    It was a shame that Greece was ever included in the Euro to begin with. Now, they need to recognize their lack of commonality with Northern Europe and go back to being simply a nice vacation spot with a great shipping industry. Back to the Drachma and fast.

  2. Bam_Man

    It is indeed sad to see what is happening to Greece. The international banking cabal is determined to make an example of them by turning the entire country into a debtors’ prison. This will end badly for everyone involved.

  3. Masonboro

    “Greece is expected to return to growth in 2013”

    How? 2013 is 10 months from now and Greeks are broke and lack export competitiveness. Who will buy what to increase GDP? Perhaps this only means a dead cat bounce from an awful 2012. Not much solace in that.


  4. kaj

    I can’t understand why Greece continues to insist on remaining in the Euro zone. It is bass-ackwards. They doubled civil service salaries, spent 14 billion on the Olympics etc. So, the cycle repeats itself.

    One of these days, the same is going to happen to Germany as its population ages and the Chinese improve their technological skills as it has been happening in the good old USA. They call it globalization, that is the globalization of wages, the last part is purposely ommitted.

    I am not going to blame Germany; their energy sector was privatized eons ago after WWII via U.S. insistence ; so they are not being hypocritical.

    We know the results of energy sector privatization in this country with very large distribution costs which have been amortised 30 times over and I trust readers remember the price gouging and illicit deals cooked up by Enron.

    Ce La vie.

  5. Hugh

    The rape of a country and its people by rentiers is kleptocracy. Far from being an exceptional case, Greece is all our futures. It is all our present. It’s just playing out differently in different countries and regions.

    We need to distinguish between Greece of the 99% and Greece of the 1%. Greece of the 1% controls the country’s political parties and government, much as our 1% control our parties and our government. They are very much part of the rape. Afterall the conditions they are accepting are and have been impossible to fulfill and are deeply against the interests of Greece’s 99%. So whether they accept this group of impossible conditions are that set is really just part of the pantomime.

  6. Lambert Strether

    “It will also sell stakes in six companies—in particular, energy companies and refineries.”

    Oh, so that’s what this is all about. Didn’t somebody write a book about that? “Shock” something-or-other?

      1. charles sereno

        What’s left of the Parthenon could be transported to the Pergamon Museum as the “Merkel Marbles.”

    1. Fiver

      Note that US banks (MS, JPM, BoA esp. – half a trillion for MS alone) have enormous quantities of EZ bank and sovereign debt and CDS at stake. The US position, it seems to me, is that it does not give a rip HOW those positions are protected, but that they MUST be protected – period.

  7. Don't GS me please!

    ‘unless Greece regains some modicum of self-respect and tells the Troika to take a hike and leaves the euro zone’

    The corrupt Greek politicians want the gravy train from Berlin/ECB as long as possible, get the last drop and skip the Country with the loots. The defense minister has already his secret account in Swiss!

  8. Foppe

    Greek police union wants to arrest EU/IMF officials

    Greece’s largest police union has threatened to issue arrest warrants for officials from the country’s European Union and International Monetary Fund lenders for demanding deeply unpopular austerity measures.

    In a letter obtained by Reuters Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.

    The threat is largely symbolic since legal experts say a judge must first authorize such warrants, but it shows the depth of anger against foreign lenders who have demanded drastic wage and pension cuts in exchange for funds to keep Greece afloat.

    “Since you are continuing this destructive policy, we warn you that you cannot make us fight against our brothers. We refuse to stand against our parents, our brothers, our children or any citizen who protests and demands a change of policy,” said the union, which represents more than two-thirds of Greek policemen.

    “We warn you that as legal representatives of Greek policemen, we will issue arrest warrants for a series of legal violations … such as blackmail, covertly abolishing or eroding democracy and national sovereignty.”

    The letter was also addressed to the European Central Bank’s mission chief in Greece, Klaus Masuch, and the former European Commission chief inspector for Greece, Servaas Deroose.

    Policemen have borne the brunt of the anger of massed protesters who frequently march to parliament and clash with police in riot gear. Chants of “Cops, pigs, murderers!” are regularly hurled at policemen or scribbled on walls.

    Thousands turned out Friday for the latest protest in Athens, this time against new austerity measures that include a 22 percent cut in the minimum wage.

    A police union official said the threat to ‘refuse to stand against’ fellow Greeks was a symbolic expression of solidarity and did not mean police would halt their efforts to stop protests getting out of hand.

    1. Doctor Brian Oblivion

      Wow, the Greek police got that right.

      But why aren’t they out subduing protesters and the unemployed? There’s much work to be done!

    2. Nathanael

      This is going to get interesting. Anyone who’s studied revolutions knows that it starts with the people massing in the streets, but when the police start joining the protestors, that is usually the turning point and the revolution usually succeeds.

      (What happens after the revolution is another matter. I have no idea.)

  9. Tim

    Thank you! This circumstance is what Bankruptcy is for. Why is Greece not declaring banruptcy? It just doesn’t make sense froma rational perspective.

    Either Greek Leadership can’t see the forest through all the trees or they work for everyone except Greeks.

    Or perhaps the status quo is too powerful since economics has been so complicated by financial engineering, leaders are scared to explore any formerly straightforward options (aka default) that may have new unforseen consequences.

    1. Bruce

      IMHO the problem with a straightforward default or bankruptcy is that it wouldn’t address the more fundamental problem of the kleptocracy, corruption and nepotism by Greece’s own 1% rentiers. They’ve been milking the system and screwing over the 99% of Greece’s population for many years now, and default alone wouldn’t change that. In fact, it would only become much worse- after a bankruptcy, Greece would effectively be cut off from credit markets and any realistic lifeline, and would have to rely on its own resources. But if Greece’s 1% is still dodging taxes, skimming off wealth and sticking the bill to the people as a whole, then there’s no real source of national income. So the problem would get even worse.

      There’s no way for Greece to solve this except for its leadership to grow a spine and go after the super-wealthy crooks who’ve been ripping off the country, and set up a more progressive tax system with an economy that’s based on something other than the well-connected and corrupt skimming of value from everyone else. (The Greeks are apparently starting to do this):

      But just defaulting, declaring bankruptcy, leaving the Eurozone or whatever else won’t help at all unless the underlying corruption of Greece’s 1% is addressed, i.e. the same thing that’s dogging and damaging the US. And Greece has already defaulted- with Merkozy having forced the bankers to take a 50% haircut on Greek debts a few months ago- and while there has been some a bit of relief on Greek obligations, it obviously hasn’t solved the core problems. I suspect that Greece’s leadership knows this and it’s why they’re staying in the Eurozone for a few more years at least, to obtain more breathing room to gin up the political consensus- even in leadership circles- that the 1% there can’t continue screwing over the country like this and still have a viable nation.

      1. Nathanael

        Yep. Even more fundamentally, the problem with the current Greek government is that it is owned by the Greek 1%. As usual, *both parties* are owned by the Greek 1%.

        Because of that similarity, Greece may actually be a trial run for what happens in the US. If they manage to throw off their kleptocratic government, we should see if we can learn any lessons from it.

  10. Bruce

    ‘While we’re at it, let’s address this “Greeks as tax cheats” canard once and for all. ‘

    The problem is not a generic ‘Greece as tax cheats’ issue, it’s the issue of Greece’s super-wealthy doing the tax cheating- i.e. the 1%ers in Greece, or the rentier class as you point out. The Ambrose Evans Pritchard article is decent but doesn’t address this distinction enough. As Hugh correctly wrote above:

    ‘We need to distinguish between Greece of the 99% and Greece of the 1%. Greece of the 1% controls the country’s political parties and government, much as our 1% control our parties and our government.’

    That is exactly the point. Clearly Greece needs a mixed approach that on the one hand reduces the austerity on small businesses and workers (the 99% who actually power the economy), while going after the privileged 1%er elites who use their nepotism and corruption both to get rich and to dodge taxes. The 1% who’ve skimmed off Greece’s wealth for themselves are responsible for this mess, not the troika and certainly not the 99% of Greeks just trying to do an honest job and contribute to their nation. Hence what’s needed is a more progressive tax structure that’s enforced, with the rentiers paying their taxes (and generally still remaining filthy rich) for the disproportionate benefit they receive. This is the solution whatever Greece’s position relative to the Eurozone- even if it leaves, it’s going to have to figure this out because it couldn’t devalue the drachma for the next ten years without defaulting anyway and winding up with an even bigger mess and no outside support. If it collects those back taxes, let alone finally confronts the nepotism that allows so many elites to avoid tax bills entirely, Greece if anything would be in an even better fiscal position than many of its neighbors.

    While we’re on the topic of canards, let’s also address this tired old ‘Germany is aging, the sky is falling’ chestnut. Germany’s birth rate is low (though not as low as many other first-world countries), but Germany also has among the highest immigration of any Western country- there’s an outdated view of Germany as a closed society, and that’s been false for a while now. Germany gets millions of young immigrants from Russia, Poland, the Ukraine, Lithuania, Belarus and elsewhere in Eastern Europe, along with growing numbers from East/SE/South Asia, Oceania, and North and South America. (They used to get a decent number of Turkish guestworkers, but that flow’s largely stopped and even reversed- Turkey has a humming economy of its own, and millions of other Turks are migrating instead to Britain or Australia.) Germany is an appealing place to work due to the high-tech economy, innovation and- yes- the dreaded (by US 1% rentiers) social capital system, with its allocations for education, health care and child care. And Germany’s retirement age recently went up to 67- since they get 4 weeks of vacation and better health care, they tend to stay healthier too, without the need to retire so early. So Germany’s overall population trend is stabilizing and if anything increasing, depending on migration policy over the next decade. And the fact that Germany is such a massive exporter (more than the US despite our greater population) gives them extra flexibility in that regard. I doubt that China poses a threat to Germany’s basic high-tech economy, if anything it’s more of an opportunity. While the Chinese are moving up the value chain, the German and Chinese economies have been co-evolving to supply and complement each other in important areas, and they both seem to welcome this symbiosis.

    As far as the general point- I’m as appalled by the shock-doctrine machinations of the global bankster class as you are, and I’m no fan of Angela Merkel, but to be fair, Merkozy *did* force the banks to take a 50% haircut on their Greek debts in that deal agreed to a couple months back. AFAIK that’s the only case in which the banks have been put in line by political leadership, so at least some members of the troika are fighting the bankster elites rather than kowtowing to them. (This is also why I’m skeptical of the hue-and-cry over the supposedly awful effects of Greece leaving the Eurozone- Greece has *already* defaulted, in effect, on half its debts, with no severe consequences to the global markets.) There’s now even a push for about a 70% haircut on Greek debts, which would indeed provide a good deal of breathing room for its economy. As for the prediction of a return to growth in 2013, that may be plausible simply for the reason that Greece’s economy is starting from a new baseline- and a rather lousy one, so it’s not like it could go much lower. I suspect that Greece would stay in the Eurozone through 2013 when growth is restored and it still has access to bailout funds, after that is anybody’s guess. It never should have been in the Eurozone to begin with (Goldman-Sachs had a lot to do with hiding its precarious financial position), and IMHO it would do better outside of it, indeed as a vacation destination with nice shipping. But it may actually benefit by staying in for a few more years to get itself together, using the argument of external pressure to confront its nepotism, and finally reduce the power of its own rentier class to screw its own people.

    1. Roland

      Immigration doesn’t alleviate the problem caused by sub-replacement fertility, unless the migrants themselves maintain, over the course of generations, at least a replacement level of fertility.

      That, however, has not been the experience in most Western or Westernized countries with high immigration. In Canada, for instance, migrants’ fertility drops to native-born levels in only a single generation.

      Therefore, high levels of immigration are the demographic equivalent of “extend and pretend.” It postpones the problem of lopsided age structures for a while, at the cost of making the future problem even worse.

      The smarter approach would be to “bite the bullet,” and endure two or three generations of an aging and declining population. Once the big post-WWII bulge has worked its way through the system, things will get quite a bit easier.

      Also, lower demand for land and high relative demand for labour will eventually raise real wages and reduce housing prices, which would indirectly encourage higher fertility. After all, it’s no accident that the countries with the highest costs of living tend to have low fertility rates.

      1. Nathanael

        What you right is absolute nonsense.

        First of all, no country needs more than replacement-level population. Ever.

        Second, no country needs even replacement-level population. It’s just more mouths to feed. Automation means that the number of workers actually required to do important things is slowly dropping.

        What a country needs is to avoid FAST drops in the worker population, and this is easily achieved even with slightly-below-replacement-rate birthrates, provided immigration is used to balance out the troughs.

    2. Nathanael

      “Germany also has among the highest immigration of any Western country- there’s an outdated view of Germany as a closed society, and that’s been false for a while now. ”

      And Germany has finally revised its citizenship law, so that five-year residents can get citizenship on demand.

      This is important. This prevents a problem which happens when the large immigrant population is dienfranchised.

  11. Doctor Brian Oblivion

    2013? A triumph for neoliberal economics!

    Growth of what, exactly? Human misery? The rate of capital and emmigration from Greece? Foreclosures?

    I’m not so sure crossing that bridge to the 21st century was such a good idea in retrospect….

  12. steelhead23

    Marshall, I agree that Greece should not subjugate itself to the ECB. But, if they did so, there would be consequences. First, the market for Greek bonds might collapse. Indeed, the market might actually be supported by the banks that have issued CDS on Greek sovereign debt to prevent a CDS tsunami, but this is not guaranteed. Whoever ends up holding the hot potato (Greek debt) will press Greece, then the IMF to make them whole. Once the IMF is involved all kinds of nasty things might happen to Greece, including internationally sanction piracy. But this is conjecture. What is less uncertain is that it would be very hard for Greece to borrow any money at all meaning salaries and pensions would have to decline anyway. So, following a default, life in Greece would likely be harder than it is today – but the Greeks would be free. If they capitulate, they would become a vassal state, with fealty to the ECB.

    1. MyLessThanPrimeBeef

      It seems we are indeed smarter than the ancients.

      If only the Persians knew this secret weapon.

  13. abelenkpe

    • It will also sell stakes in six companies—in particular, energy companies and refineries. LOL, of course!

    Shock doctrine….coming soon everywhere

  14. MyLessThanPrimeBeef

    There is a saying in Greece: Beware of Goldman Sachs bankers bearing gifts of swaps and credit derivatives.

  15. Lyle

    So the question in the april election will be which route is worse to toe the line or tell the paymasters to go to the hot place, and just default?

  16. different clue

    I heard on BBC a news report about a whole new round of extortionate blackmail demands issued to Greece by the EuroGermanoid Financial Leadership. I found myself wondering whether such leadership has in fact a secret plan to try forcing Greece out of the Euro while trying to make it look like Greece chose to leave.

    Would leaving be a bad choice at this point?

  17. PPP

    The population of Greece is in a horrible situation, suffering greatly, having no good options, and at the mercy of EU leaders who have no coherent long-term plan for an economic revival of the EU.

    *BUT* that doesn’t mean we have to deny that Greece also has a very significant tax evasion problem! The country does, and the people who suffer because of it are mainly the Greek working class and the poor. Greek elites, professionals, and the broad upper middle class evade a lot of taxes, atrociously underreporting income. And they’re using their continuing political power within Greece to make sure that all austerity measures hurt the working class and poor (cutting services and raising taxes regressively), not themselves. It’s no myth; they’re tax cheaters and it’s socially corrosive.

  18. JustAnObserver

    The Telepraph’s Ambrose Evans-Pritchard’s post on Greece have been getting simultaneously shorter and shorter and more and more vitriolic as this (bankster induced ?) crisis heads towards its sad, ludicrous, but totally predictable denouement.

    Can we conclude that when they are down to a single sentence – or just a couple of dispairing words – the end has finally arrived ?

  19. Lafayette


    Greece is the bad-boy of the class, sent to sit in the corner facing the wall with a dunce-cap. It is a highly public lesson that, it is hoped, other countries will understand. Namely, Portugal.

    In fact, the entire EU political class is being asked to watch the lessons being given. Ever since the advent of the euro, politicians have seen it preferable to get further into debt the nation and borrow yet again to make payments on their national debt. But, when the fit hits the shan and economic growth no longer is solid enough to sustain the endless borrowing, then this very same political class becomes hopeless.

    Because it made the mistake of not correcting the problems when times were good and therefore a more appropriate moment to ask a nation to undergo some fundamental painful reformations.

    For the longest time, the sense of Social Justice in Europe consisted of establishing a Defense Perimeter around Labor. This consisted of large increases in minimum wage, heightened taxation on labor for local governments, inflexible labor laws that prohibited companies from making labor redundant – and even the recent stupidity of a Socialist legislator in France to suggest that dislocation of companies to foreign climates should be forbidden by law.

    These measures, some of which have existed for half a century, finally caught up with Europe. Its labor rates are some of the most expensive in the world – which is why the China Price prevails across the EU. Lo and behold, EU customers – just like their American counterparts – prefer the cheaper China Price. What’s a country to do when faced with this predicament – no growth and thus a class of adolescents wholly dispirited by the thought that they have no future?

    Borrow more money, whilst do nothing to change the laws that inhibit a reduction in labor costs (because this would be “politically incorrect”), to sustain Unemployment Insurance that, in some cases, goes on for years and years and years.

    Something had to give. The mechanism was broke and not a single politician had the courage to fix it. Except Schroeder in Germany who disassembled a considerable part of Germany’s many labor-restricting regulations. (Where upon he got a great job from his friend Putin and went off to work … in Switzerland! Smartass that he was …)

    Germany is thriving with relatively high wage costs and comparatively lower unemployment levels.

    Will wonders never cease … ?

    1. Fiver

      It isn’t the “China price”, it’s the global multinational corporate price. And what you advocate as “medicine” is the adoption of the global multinational corporate agenda – an agenda which seeks maximum asymmetric gain irrespective of the public interest anywhere.

      The West HAD TO yield substantial portions of its wealth and power to Asia and the global South in general. It absolutely did NOT have to do it this way.

  20. Fiver

    Good to see at least a reference to the IMF’s role in all this. Apart from non-stop remonstrations re “complacency” and pot-banging for “action” from Lagarde, the IMF’s real position throughout has received very little public scrutiny. Yet it is critical to know, as its stance is the de facto US stance.

  21. Ben Leet

    The world’s assets are held by a minority, and the democratic majority are still unwilling to liquidate the insolvent banks, as they should be liquidated, nor will the majority insist on the correct reflation which would involve public job creation and the use of Functional Finance. Credit Suisse Bank’s World Wealth Report, 2011, says 0.5% of adults own 38.5% of all wealth, and 8.9% own 82.5%. There seems to be a vacuum for democratic solutions to the “bad wealth” problem. Instead an aggressive Shock Doctrine response to crisis. has a good article about this today.

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