by Tony Norfield (2011)
Is the Greek debt crisis the fault of predatory banks? It might look that way, given that banks are demanding their money back, Greeks face job cuts and tax rises, and the Greek government now has to pay rates of up to 30% to borrow, if it can borrow any money at all. But an examination of how the crisis began points the finger instead at the euphoria that gripped Greek politicians, businesses and the middle class once the country joined the euro in 2001. Far from euro membership helping the development of Greece’s economy, it has turned into a disaster. Blaming the banks for Greece’s troubles may be popular, but it hides the facts and feeds the delusions of those who think that the only problem with capitalism is finance.
1. Greece’s euro membership
Greece joined the European Union in 1981, and became part of the single European trading market. It began to enjoy strong economic growth, helped by the growing trade relationships with and development aid from the rest of Europe. But there was only limited success in making the poorly developed Greek economy move closer to the European average. The money from European funds – worth several billions of dollars per year – was largely used to plug gaps in the Greek budget that was struggling to meet the costs of pensions and other current expenditures. One study calculates that, up to 1995, 60% of European development funds were not used on infrastructure projects. Although the aid money was better spent after 1995, helping to modernise the transportation network, when Greece joined monetary union in 2001 there was another opportunity to screw things up.
Major European powers decided, just about, that Greece had met the membership rules that focused on economic issues like inflation rates and government spending deficits. These rules were designed to prevent unstable countries from causing trouble for the key players who would have to pick up the bill for the system’s problems, especially Germany.
The benefits to Greece of EMU entry were Read the rest of this entry »