The Guardian has reported that German Chancellor Angela Merkel tried to get Greece’s private sector creditors, including the banks, to forgive some of Greece’s debts to them as part of a bail-out package for the Greek government. Some IMF and other economists argued for the same thing (1) – (2). The banks and other private creditors refused (3).
If they continue in their greed in refusing to give up any of the money owed to them Greece will most likely default on it’s debts and they will get not one penny.
French President Nicholas Sarkozy has claimed that leaving the Euro is not an option for either France or Greece as if they did their debts would still be denominated in Euros, the Greek and French currency would be worth far less than 1 euro per unit of currency and so their debt would effectively increase (4).
However if Greece has defaulted on all it’s debts this would not be a problem for them. It might affect their balance of payments negatively (i.e increase the value of what they import compared to what they export) but compared to the harsh conditions set for bail-out and the massive size of Greece’s debts this might seem like a minor problem.
The IMF and Greece’s governmental creditors in the EU have set the usual conditions of privatisation of public services and assets, sacking of public sector employees and cuts in welfare payments (5).
The privatisations demanded include the privatisation of water, which will price many of the poorest out of being able to afford water at all. Privatisation of water supplies led to cholera epidemics when it was done in South Africa as many people couldn’t afford piped water any more; and to riots in Cochabamba in Bolivia after the foreign water firms who bought up Bolivian water infrastructure started charging for the entire cost of new investments by raising prices in advance to cover the whole cost of major investments up front (6) - (9).
They also include electricity (10). This would remove the revenues of one of the few public services that could turn a profit from government.
If the Greek government agrees to all this the likelihood is that the country will be tipped into a second even worse ‘double dip’ recession. Given that and massive public opposition to the rescue package conditions, since most Greeks don’t see why they should pay for the decisions of bankers and politicians who caused the crisis through lobbying for and implementing deregulation of the financial sector across most of the developed world, it seems likely the Greek government will either have to default, partially or entirely, on it’s debts, or else it will fall and whatever government replaces it will be forced to.
The IMF and EU conditions on the bail out are not addressing the main cause of Greece's debts either. This is tax avoidance through corruption. Many people and companies who can afford to, bribe officials or politicians to allow them to evade taxes altogether, resulting in the gap between tax revenues and government expenditure and placing the tax burden on those who can least afford it - the people and small businesses who can't afford to pay bribes (along with those who could but decide it would be wrong to) (11).
Defaulting on a large percentage of their other foreign debts did not work out badly for Argentina, in fact leading to it finally getting out of a situation of mass unemployment and massive debt. The debt default and repudiation of IMF conditions was followed by rapid growth which was interrupted briefly in 2009 by a recession caused by the global financial crisis, followed by more rapid growth. (The table on this link shows Argentina’s growth rate since 2002 if you change the start year to 2002.) (12) – (14).
Argentina did have help from Venezuela’s government, which had a surplus when oil prices were high due to the Iraq and Afghanistan wars and tension over whether there’d be war with Iran. Venezuela funded Argentina paying off it’s debts to the IMF. Foreign creditors were then forced to accept 25% of the money initially owed to them (15) – (16).
As a result last year Argentina was able to pay off it’s debts at a rate equivalent to creditors getting 51% of what was initially owed to them despite suffering a recession due to the global financial crisis and having to default on debt payments again in 2009 (17) – (18).
Development economist Ha Joon Chang has pointed out that many developing countries have defaulted on their debts without disaster ensuing in the past and they were rapidly able to get new loans from new investors (19).
The IMF is usually far more concerned with what is good for foreign creditors than what’s good for the people of countries it’s imposing conditions on for loans and grants, because it’s funded by the richest countries and they appoint it’s head.
(1) = guardian.co.uk 17 Jun 2011 ‘Germany climbs down over Greece bailout demands’,http://www.guardian.co.uk/world/2011/jun/17/greece-bailout-germany-private-banks
(2) = guardian.co.uk 03 Jun 2011 ‘Anger mounts in Greece as eurozone ministers edge nearer to bailout deal’,http://www.guardian.co.uk/business/2011/jun/03/greece-debt-crisis-second-bailout-talks
(3) = See (1) above
(4) = EU business 27 Jun 2011 ‘Sarkozy says France will propose new plan to aid Greece’, http://www.reuters.com/video/2011/06/27/greece-debates-new-austerity-plan?videoId=216516632
(5) = Reuters 14 May 2011 ‘
EU,IMF pushing Greece to fully privatise utilities – reports’,http://www.reuters.com/article/2011/05/14/greece-economy-idUSLDE74D02920110514
(6) = See (5) above
(7) = J. Pauw (2003)‘The politics of underdevelopment: metered to death-how a water experiment caused riots and a cholera epidemic’ in Int J Health Serv. 2003;33(4):819-30. http://www.ncbi.nlm.nih.gov/pubmed/14758861
(8) = Water Justice 19 Oct 2004 ‘The UK Government and Water Privatisation’,http://www.waterjustice.org/analysis.php?componentID=2&articleID=83
(9) = The Nation 28 Jan 2005 ‘The Politics of Water in Bolivia’, http://www.thenation.com/article/politics-water-bolivia
(10) = See (5) above
(11) = BBC Radio 4, 11 Feb 2010 'From Our Own Correspondent - No Tax Please we're Greek', http://news.bbc.co.uk/1/hi/programmes/from_our_own_correspondent/8509244.stm
(12) = BBC News 21 Nov 2002 ‘Crisis-hit Argentina defaults on debt’, http://news.bbc.co.uk/1/hi/business/2471617.stm
(13) = Guardian 02 Apr 2009 ‘Argentina heads for return of debt default that 'left it out of the world' seven years ago’, http://www.guardian.co.uk/world/2009/apr/02/argentina-debts-economic-crisis
(14) = Trading Economics - ‘Argentina GDP Growth rate’, http://www.tradingeconomics.com/argentina/gdp-growth
(15) = guardian.co.uk 19 Dec 2005 ‘Goodbye and Good Riddance’,http://www.guardian.co.uk/business/2005/dec/19/argentina.internationalnews
(16) = See (11) above
(17) = Guardian.co.uk 16 Apr 2010 ‘Argentina to repay 2001 debt as Greece struggles to avoid default’,http://www.guardian.co.uk/business/2010/apr/16/argentina-to-repay-2001-debt
(18) = See (12) above
(19) = Ha Joon Chang (2010) ‘23 Things they don’t tell you about capitalism’, Allen Lane, 2010
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