Debt Story

Last week I went to a talk by Czech Prime Minister Petr Nečas at LSE in which he made the usual grim diagnosis about the debt crisis in Greece. The country was in dire need of structural reforms, he said, both to its economy and society. Leaders across the continent have been making similar criticisms, with Sarkozy and Merkel warning the Greek government last month that it wouldn’t receive new bailout funds unless it fully implemented austerity measures. And despite the significant debt swap agreed on today, any EU bail-out remains conditional on the country implementing a further round of budget cuts. Yet one area of the Greek budget doesn’t seem to have received such scrutiny, its huge military spending. The reason is simple, France and Germany still account for the vast majority of arms sales to Greece.

Admittedly, Greek military spending has been reduced massively over the last few years, although not nearly as much as government expenditure on healthcare, pensions or social welfare. However it still spends the most in the EU as a percentage of GDP, and remains one of the biggest weapons importers in the world. Moreover, in 2010 when the first bail-out package was being negotiated, the Greeks spent €7.1bn on its military, compared with €6.24bn in 2007. £1 billion was spent on French and German weapons, plunging it even further into debt. Many suspect that this is no co-incidence, and that the rescue package was explicitly tied to burgeoning arms deals. In particular, there is evidence of pressure from France to buy six frigates, whilst Germany was content to sell off some faulty submarines.

The fact that Greece, a relatively small and democratic country with not much in the way of global ambitions, should spend so much on its military is fairly perplexing. In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. It has a standing army of 156,000 men, more than the UK which has 6 times its population, and still has a compulsory military service of 9 months. Over the last 10 years its military budget has stood at 4% of GDP, over $1500 per person. If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent 1.7% like a typical EU country over the last 20 years, it would have saved 52% of its GDP – meaning instead of being completely bankrupt it would be one of fairly average countries struggling with the recession.

Of course, the supposed threat from Turkey is always used as a justification by Greece for its profligate arms spending. However, this argument just doesn’t hold up on several grounds. Firstly, both countries are part of NATO and share a number of mutual allies, not least the US, and so all-out war between the two is highly unlikely to occur. Secondly, Turkey has proposed on several occasions a mutual reduction in arms spending, something Greece has repeatedly refused to do. Finally, despite all this relations between the two countries have markedly improved in recent years, making such a massive military build up seem even more unnecessary. All Greece’s military spending seems to achieve is antagonise the situation and goad Turkey into an arms race. So why has Greece continued to spend such huge amounts on its army? It’s not altogether clear, although it may well be due to populist pressure on the previous right-wing government not to appear soft in the ongoing tensions with Turkey over Cyprus.

What is certain is that the French and German arms industries have gained a lot from Greece’s extravagant spending. In the five years up to 2010, Greece purchased more of Germany’s arms exports than any other country, buying 15 per cent of its weapons. Over the same period, Greece was the third-largest customer for France’s military exports, and its top buyer in Europe, with 12 per cent. The Netherlands also has been a significant exporter. However, the US is perhaps the biggest beneficiary, accounting on average for 40% for Greek imports, and has been known to intervene in military spending decisions. In addition, with each new new fighter plane or battleship sold creating yet more sales to regional rival Turkey, it is easy to see why Greece has made such a lucrative market.

In the current context, it is easy to blame all Greece’s troubles on its problems with corruption, tax evasion and its oversized state sector. These are all undeniable issues which no doubt require significant ‘structural reforms.’ Yet, arms imports aside, is Greece really that different from Spain or Portugal, countries also in dire straits but not standing on the brink of collapse? I cannot help but speculate that if Greece’s military spending had been reined in sooner, at the expense of the French and German arms industries, we might not be facing the crisis we are now. And the Greek people, instead of facing austerity measures which have reduced living standards by 30%, might have been able to take a more moderate and sustainable route to reform.

Breaking down the problem.

So, I’m sure that you’ve heard of the ongoing European financial crisis. If you have no idea what I’m talking about, let me give you a quick recap:

1. In the mid 2000’s Greece enjoyed much growth, and the Greek economy was one of the fastest growing in the Eurozone. The government took advantage of this and spent extravagantly, running a large structural deficit. (What is a deficit, you ask? A deficit occurs when the government outlays exceed government revenues. In other words when the taxes you pay are not enough to cover the government’s expenditures). When deficits increase, the government starts acquiring debt in order to finance the country’s operations. With a steeply rising deficit, outstanding debts grew exponentially.

2. In October 2009, George Papandreou followed in the footsteps of his family to become the Greek prime minister. After coming into position, he learned that Greece had been understating its debt numbers for years.

3. Greece had joined the European Monetary Union (EMU) by downplaying its debt numbers in order to comply with the necessary requirements. Once it was accepted, membership meant more ease in borrowing money.

4. When the numbers were publicized, and the truth was available for the entire world to see, the country’s credit rating downgraded from an A- to a BBB+. With an increased likelihood of a Greek default, investors demanded a higher yield on the Greek bonds they had purchased. This pushed up the cost of borrowing even further, thus creating an inescapable cycle.

Using the bailout money as a solution made Greece worse off, because of the fact that solving a debt crisis by acquiring more debt is simply a recipe for disaster
5. These bonds were far spread and wide. If the Greek economy defaulted, it would be taking down all of Europe along with it. Many global banks in various countries were also being affected since they held a significant portion of the debt. (German Banks = $22.6bn, French banks=$15bn, UK banks = $3.4bn.) Also, many private investors – including pension funds – hold an additional $14.6bn. London, being at the centre of this financial crisis, also stood in the middle of any banking crisis.

6. So what was the solution to all this mayhem? Well, the only thing that could be done at this point was to bailout Greece. Even though a bailout usually means that the money comes “no-strings-attached,” it actually came in the form of huge loans from a specifically created fund called the European Financial Stability Facility (EFSF). On May 2010, a bailout for €110 billion was approved, and last week, another bailout for €130 billion was formalized.

7. In return for the bailout money, Greece had to initiate some measures that were severely harmful to the economy as a whole. €530 million from health and pension funds, €400 million from defense, €50 million from doctors’ overtime pay, and €80 million from education budgets were cut. The effect of these measures has led to a current unemployment rate of an astounding 21%, with a severe scarcity of jobs.

8. This has led to riots on a regular basis on the streets of Greece. Overall, the Greek economy is not doing so well. If Greek defaults on the bailout loans, it might lead to a major financial downturn in all of Europe, which could drag the Americas down with it, due to the globalization of assets.

So, after getting a glimpse of the entire situation, what do you think went wrong? What were the core problems that slowly led to a booming country turning into one where petrol bombs are thrown at the Parliament house on a regular basis? The problem was, that the Greek government overindulged during the economy’s expansion in the mid 2000’s, into spending money it didn’t have, on public welfare. It is always nice of the government to try and be as generous to the citizens as possible, but the problem arises when they start spending money they neither have nor have the capacity to repay.

Also, tax evasion is vastly present in Greece. With an increase in government spending, but a lower tax collection rate, debts will obviously continue to build! Moreover, hiding the truth in terms of concealing the debt figures was what made matters worse. If the debt numbers had been out in the open since the very beginning, other preventative measures could have been suggested by either the UN World Bank, or by other nations.

Finally, using the bailout money as a solution made Greece worse off, because of the fact that solving a debt crisis by acquiring more debt is simply a recipe for disaster. The only way this problem could have been solved safely was if the Greek GDP was to grow exponentially, but that would take many years to happen, and in order for GDP to grow, they would need investments, which can only be acquired through more debt. Greece was caught in a vicious cycle that could not be solved unless they used the bailout money, which ironically, simply worsened the situation. All that can be done for the future is to hope that somehow Greece can get back on its feet safe and sound, in about a few years from now.

LaRouche: Only Glass-Steagall Now
Can Halt Global Breakdown

by the Editors

[PDF version of this article]

May 29—Abruptly, but lawfully, the Spanish debt crisis has erupted into a systemic rupture in the entire trans-Atlantic financial and monetary facade, posing the immediate question: How far will the European Monetary Union and the entire trans-Atlantic financial system survive into the days or weeks ahead? The collapse is upon us.

Late on Friday afternoon May 25, the Spanish government revealed that bailing out the Bankia bank, which was nationalized on May 9, will cost Spanish taxpayers nearly €24 billion—and rising. Many other Spanish banks are facing imminent collapse or bailout; the autonomous Spanish regions, with gigantic debts of their own, are all bankrupt and desperate for their own bailouts. Over the past week, Spanish and foreign depositors have been pulling their money out of the weakest Spanish banks in a panic, in a repeat of the capital flight out of the Greek banks months ago.

But the Spanish government’s bank bailout fund had only€5.4 billion in its coffers, so two days later, Prime Minister Mariano Rajoy announced a new plan to bail out Bankia with government bonds—basically, funny money. The next day, in the face of plunging markets and soaring interest rates, Rajoy called a press conference to repudiate his plan, and plead instead for a direct bailout by the European Financial Stability Facility (EFSF). The funds for Bankia, of course, would only be the beginning, as the government estimates that other Spanish banks need an additional €50-60 billion—on top of the €140 billion debt crises in the bankrupt regions.

The situations in Greece, Italy, Portugal, and Ireland are equally on the edge of total disintegration—and the exposure of the big Wall Street banks to this European disintegration is so enormous that there is no portion of the trans-Atlantic system that is exempt from the sudden, crushing reality of this collapse.

The hyperinflationary “solutions” being discussed by European leaders are known to be no solutions at all, as bankers and companies are now publicly admitting. The euro system is at an end, and they are scrambling to put together a “Plan B.”

Some examples: On May 27 Richard Ward, the CEO of the insurance giant Lloyds of London, admitted in an interview with the Sunday Telegraph that his company has devised plans for the breakup of the European Monetary Union, based on anticipating that Greece, which faces new elections June 17 (the last election was May 6), will be leaving the euro, and adopting its old currency, the drachma. The Franco-German firm Euler Hermes, which provides credit insurance for euro-denominated businesses, said it was considering cancelling future credit default swap contracts for Greek debt denominated in euros. And the head of the Swiss National Bank, Thomas Jordan, has acknowledged that his government is working up contingency plans for the breakup of the euro.

Whether the system holds together for a few days or weeks more, or whether it goes into meltdown in the coming hours, the moment of truth has arrived, when all options to hold the current system together have run out.

On May 26, in response to this immediate crisis, Lyndon LaRouche issued a call to action. Referring to the overall trans-Atlantic financial bubble, in light of the Spanish debt explosion of the previous 48 hours, LaRouche pinpointed its significance, and laid out the only solution, which starts with a revival of President Franklin D. Roosevelt’s 1933 Glass-Steagall Act. Either immediate action is taken to enact it—Rep. Marcy Kaptur’s H.R. 1489, “The Return to Prudent Banking Act,” is before the U.S. Congress and ready to go—or the situation will be hopeless.
The Hyperinflationary Trap

LaRouche laid out the situation as follows:

“The rate of collapse now exceeds the rate of the attempts to overtake the collapse. That means that, essentially, the entire European system, in its present form, is in the process of a hopeless degeneration. Now, this is something comparable to what happened in Germany in 1923, and they’ve caught themselves in a trap, where the rate of collapse exceeds the rate of their attempt to overtake it yesterday.

“So therefore, we’re in a new situation, and the only solution in Europe, in particular, is Glass-Steagall, or the Glass-Steagall equivalent, with no fooling around. Straight Glass-Steagall! No bailouts! None! In other words, you have to collapse the entire euro system. The entirety of the euro system has to collapse. But it has to collapse in the right way; it has to be a voluntary collapse, which is like a Glass-Steagall process. This means the end of the euro, really. The euro system is about to end, because you can’t sustain it.

“Everything is disintegrating now in Europe. It can be rescued very simply, by a Glass-Steagall type of operation, and then going back to the currencies which existed before. In other words, you need a stable system of currencies, or you can’t have a recovery at all. If the rate of inflation is higher than the rate of your bailout, then what happens when you try to increase the bailout, is you increase the hysteria. You increase the rate of collapse. The rate of collapse exceeds the rate of bailout.

“And now, you have Spain, and Portugal implicitly, and the situation in Greece. Italy’s going to go in the same direction. So the present system, which Obama’s trying to sustain, in his own peculiar way, is not going to work. There’s no hope for the system. Nor is there any hope for the U.S. system in its present form. The remedies and the problems are somewhat different between Europe and the United States, but the nature of the disease is the same. They both have the same disease: It’s called the British disease. It’s hyperinflation.

“So, now you’re in a situation where the only way you can avoid a rate of hyperinflation beyond the rate of hyper-collapse is Glass-Steagall, or the equivalent. You have to save something; you have to save the essentials. You take all the things that go into the bailout category, and you cancel them. How do you cancel them? Very simple: Glass-Steagall. Anything that is not fungible in terms of Glass-Steagall categories doesn’t get paid! It doesn’t get unpaid either; it just doesn’t get paid. Because you remove these things from the categories of things that you’re responsible to pay. You’re not responsible to bail out gambling, you’re not responsible to pay out gambling debts.

“Now, the gambling debts are the hyperinflation. So now, we might as well say it: The United States, among other nations, is hopelessly bankrupt.”
Get Rid of the Bad Debt

“But this is the situation. This is what reality is! And what happens, is the entire U.S. government operation is beyond reckoning. It is collapsing, and there’s only one thing you can do: the equivalent of Glass-Steagall. You take those accounts, which are accounts which are worthy, which are essential to society; you freeze the currencies, their prices; and no bailout. And you don’t pay anything that does not correspond to a real credit. It’s the only solution. The point has been reached—it’s here! You’re in a bottomless pit, very much like Germany 1923, Weimar.

“In any kind of hyperinflation, this is something you come to. And there’s only one way to do it: Get rid of the bad debt! It’s going to have to happen.

“The entire world system is in a crisis. It’s a general breakdown crisis which is centered in the trans-Atlantic community. That’s where the center of the crisis is. So, in the United States, we’re on the verge of a breakdown, a blowout; it can happen at any time. When will it happen, we don’t know, but we’ve seen this kind of thing before, as in 1923 Germany, November-December 1923, this was the situation, and it went on after that. But it’s a breakdown crisis. And that’s it.

“Those who thought there could be a bailout, or they had some recipe that things were going to be fine, that things would be manageable, that’s all gone! You’re now relieved of that great burden. You need have no anxiety about the U.S. dollar. Why worry about it? Either it’s dead or it’s not! And the only way it’s not going to be dead, is by an end of bailouts. That’s the situation.

“We don’t know exactly where the breakdown point comes, but it’s coming, because we’re already in a system in which the rate of breakdown is greater than the rate of any bailout possible. And there’s only one way you can do that: Cancel a whole category of obligations. Those that don’t fit the Glass-Steagall standard, or the equivalent of the Glass-Steagall standard: Cancel them immediately! We don’t pay anything on gambling debts. Present us something that’s not a gambling debt, and we may be able to deal with that.”
A Stark Warning

“If you think that this system is going to continue, and you can find some way to get out of this problem, you can not get out of this problem, because you are the problem. Your failure to do Glass-Steagall, is the problem. And it’s your failure! Don’t blame somebody else: If you didn’t force through Glass-Steagall, it’s your fault, and it continues to be your fault. It’s your mistake, which is continuing.

“That’s the situation we have in Europe, and that, really, is also the situation in the United States.

“But that’s where we are! It’s exactly the situation we face now, and there’s no other discussion that really means much, until we can decide to end the bailouts, and to absolutely cancel all illegitimate debt—that is, bailout debt.

“There’s only one solution: Get rid of the illegitimate disease, the hyperinflation! Get rid of the hyperinflationary factor. Cancel the hyperinflation. Don’t pay those debts! Don’t cancel them, just don’t pay them! You declare them outside the economy, outside the responsibility of government: We can no longer afford to sustain you; therefore, you’ll have to find other remedies of your own. That’s where you are. It had to come, it has been coming.”

What’s goin on here?

And how are the Bilderberg club involved in this stupid but deadly game?

I guess we are all familiar with the Greek “Divine Comedy” either we agree or not with all the name calling,the Med Club and other distractions.
But is it really a debt story? Or is it something deeper than a bunch of lazy guys evading tax?

As i said here trying to make an eestimation,not even close to prediction.. but just because I have been quite familiar with politics once upon a time.. all this have less to do with debts,defaults,sovereign,cash,and /or countries.

Isn’t it amazingly surprising that less than a day after the notorious Greek election (round B) Russia decided to make its move in the Eastern Mediterranean along with China? Is it territorial defense? Of course not..Is it any kind of plan for expanding its empire? Again nope.All it is is a game of power and a show of “Who’s the mighty one on this planet”

Putin doesn’t like the Bilderberg activity.. They get in his way.China feels the same as Putin.Brazil wants to have a share of the pie and shake its bad reputation of a country of endless and forgivable criminality..India is having its hopes high and Iran trying to prove it’s not gonna fall that easily as Iraq did.

So what do they all want from this dot on the map called Greece,from the Mediterranean itself and they decided to write an opera of flowing cash..
My opinion is that it’s going further than a simple geopolitics and underground wealth exploitation game.It is more simple than that.It is now known even to the most ignorant,that the Bildebergs control not only the majority of companies around the world,but almost all of the western governments,controlling “areas” for them is controlling one more part of the planet.Maybe now it is Greece and tomorrow will be Syria ,Italy whoever.But what is hiding behind the war moves is the new cold war.

This time it is Russia and the Bilderberg club.Usa is absent because it IS the Bilderbergs.So what they do before owning a spot of the world,before they “assassinate” it financially..They get buddy buddy with high level officials.. the Elites..They provide them a strong motive to be the traitors of their nations and then they offer them a nice shelter somewhere in Canada for example..
In return all they have to do is hand the Bildebergs the keys of any country.

So, today is the 20th of June,3 days after the crucial Greek election.Of course they were crucial,mostly for the Greek people and then for everybody in this world.But why so much fuss so much terror so much manipulation on the Greeks if the only purpose was to create a war incident in Middle East? No purpose at all,if you agree.. Unless if they do desire to cause a global market crash and get done with a useless generation of politicians like Merkel or Papandreou or anyone else.. and get rid of a non fuctioning currency not serving any interests any more since it DIDN’T bring down the US dollar as everyone was expecting.
What is better than a war scenario huh..and all of the sudden Russia withdraws its forces from the Eastern Mediterranean I mean come on who pulled Putin’s ear..Let me guess the stock markets or S&P guided by the Bilderbergs which already has given a C grade for some of the Russian provinces.When Russia tries desperately to save Cyprus from a collapse and get in the euro-game.. and firstly,it has its interests set on Greece.And if Russia doesn’t want a US “no-fly ” zone it has any right but both the USA and Russia they are barking to the wrong tree as Syria is an independent country that eventually will have to solve its own issues if the syrian people don’t want to end up in a massacre thanks to the big guys.

So we move on to the next stage:
a) Greece is doomed by everyone no matter the election outcome.. so much for the importance
b) Russia backs off just to make its move till July
c) USA sends in its battle ships
d) Both will want to build bases in new places(i made a rhyme 😀 )
e) Israel will be put on halt till it will be in a position to serve interests
f) Iran is long forgotten as a threat( please do note the time line: when it was forgotten as a nuclear threat? When the EuroZone started falling apart) but it will make a very flashy entrance to the scene

and last but not least

g)Nobody has any information on the artillery to be used..Since the last conflict we all suspect the arms technology has evolved.But up to which point? Why is it classified? Why we have to be again in front of a factor that was never calculated in the MSM stormy news?
Why all the TV channels are so busy with the collapse of the euro and a tiny country and all of those scenarios.. Greece yes,it was the country which offered a lot,more than a lot to all of us,nobody can deny that.But its debt or alleged or fabricated debt was more important than all those hidden changes that some of us felt we had to bring to light even in a form of suspicion?Something is really wrong and if you fail to see it I am sorry along with others too.
Spain,how can possibly Spain be defaulting! Okay I will buy the Greek default story if you explain to me how the hell Spain is broke.. Don’t tell me because it lent to Greece You can do better than that
Premeditated global collapse for the Bilderbergs.

Is it a coincidence that a conflict waits for an ignition NOW??? NOW?

I don’t see conspiracies everywhere but it’s too much of a coincidence.Mubarak having a heart attack?So damn convenient! I think Egypt had cut off the natural gas supplies to Israel based on no ground.. like 2 months ago.Was that the beginning of a war crime hidden behind fake defaults?

who profits?
Certainly not you or me the known tax payers.

The control game still is in process and I am really afraid that more will come next month.

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