BIG BANKS RUN EVERYTHING

Thursday, May 28, 2015 06:00 PM CST

Big banks run everything: Austerity, the IMF and the real story about world economy that the media won’t tell you

If you want to understand what's really happening in Greece and Ukraine, just follow the money

BY: Patrick L. Smith

Topics: Greece, Ukraine, Austerity, Business, Editor's Picks, Banks, Larry Summers, International Monetary Fund, Business News
Big banks run everything: Austerity, the IMF and the real story about world economy that the media won't tell you
Lawrence Summers, Timothy Geithner, Christine Lagarde (Credit: AP/Reuters/Molly Riley/J. Scott Applewhite/Ruben Sprich/Photo montage by Salon)

Fascinating to watch the International Monetary Fund as it fronts for the U.S. Treasury and international lenders in the Greek and Ukrainian debt crises. In the former, the fund pins the Syriza government to the wall because it dares to represent its electorate. In the latter, it stands by the Poroshenko government because it has no intention of representing anybody other than banks, corporations and the global strategy set.

“Fascinating” is one word for this and it holds. “Greed in action” is three but they do a better job.

Coincidentally enough, both the Greek and Ukrainian cases now near their respective denouements. Miss this and you miss a singularly plain display of power, the way it works and what it works for in the early 21st century.

Athens has debt payments of €1.6 billion ($1.76 billion) due in June and must make them if it is to receive a further tranche of European and I.M.F. funding. This is essential if Greece is to recover—not from the 2008 financial crash and its economic fallout, which was long ago absorbed, but from the recovery program the fund and the European Union imposed in 2012. That is textbook neoliberalism, naturally, and the results are before us. Prime Minister Alexis Tsipras calls it “a humanitarian crisis,” and I have heard no one dare counter him on the point.

The Kiev government owes international bondholders $35 billion, and $23 billion of it is also due in June. Slightly different situation here: Ukraine, too, needs to shake loose I.M.F. and European funds to revive an economy even worse than Greece’s, but this is not about ameliorating any kind of social crisis. It is about inducing one, in effect, so the neoliberalization process can be completed and working people in Ukraine are made properly, structurally desperate.

It is highly unlikely you will read about these two crises in the same news report—this would be asking too much of media committed to conveying disembodied data without context so that readers and viewers cannot understand what they are (not) being told. Let us, then, treat Greece and Ukraine together. It is where the fascination comes in.

The Greek case. The story starts with the first bailout, in 2010, a €110 billion deal, and the second, two years later, worth €130 billion more. The Socialists negotiated the first bailout and it cost them power within a year. The second was agreed by New Democracy, the rightist party founded in 1974, shortly after the dictatorship of the colonels collapsed.

The New Democrats accepted the extensive austerity measures the I.M.F. and its European co-lenders insisted upon. These included budget targets requiring severe cuts in public service wages, pensions, nationalized health care provisions and all else Europe’s social democracies built over a long period of time. Labor law was to be eviscerated along with (and not coincidentally) regulations governing foreign investment. Privatizations of public-sector enterprises—rails, ports, airlines and airports, the profitable and potentially profitable first—were essential stipulations.

Under Carlos Menem—remember that clownish greedhead?—Argentinians took to call this brand of economic ideology “savage capitalism,” and the phrase has ever since proved its usefulness. Same thing in post-2012 Greece, the bailout years that matter most.

We have read of the consequences often enough: a 25 percent drop in GDP, wage cuts of equal size, unemployment hovering above 25 percent, people losing their homes and finding supper in dumpsters, shuttered schools, malnourished children, on and on. Among the technocrats in Brussels and at the I.M.F. and the bankers in Frankfurt and London, this is recovery. The macroeconomic targets are being approached if not met.

By tradition the I.M.F. tends to shape country programs with two features. It lends to stricken countries and conditions payments on multiple austerity measures. In effect, it writes checks to indebted governments, which then write checks to lenders. Bailouts are structured to rescue banks, not any given citizenry. The No. 1 casualty, apart from all those who suffer the effects of the fund’s conditionality, is the democratic process, since bankers and the fund assume, effectively via blackmail, the authority to dictate social policy.

One post-crisis variation is to be noted. In the 2012 bailout, the I.M.F. required lenders to accept a writedown in the principal and interest Athens owed. This is the famous “bail-in” or “haircut.” The 2012 haircut was 74 percent, although this is nominal, as it means not a loss of that percentage but a reduction in potential profit, and the reduction will not necessarily come to that, depending on market conditions.

Here is what we are looking at now.

Syriza, an impossible rainbow of leftist constituencies, defeated the rightist New Democrats in a snap election earlier this year. It immediately set out to renegotiate New Democracy’s bailout deal, and it has been crisis management ever since.

Yanis Varoufakis, finance minister in Alexis Tsipras’s government, developed an alternative economic strategy to recover from the recovery. It holds up, as analyzed previously in this space. The other day he presented E.U. officials with minutely detailed flow charts demonstrating that the bailout terms he and Tsipras inherited and the root of Greece’s problems now.

The technocratic facts of Greece’s case seem to matter not. Christine Lagarde, the I.M.F.’s director, makes no argument for burden sharing among lenders this time, and the E.U. has nothing of the kind on offer.