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Bailout of Greece leaves workers in misery

Workers receiving minimum wage in Greece, are about to receive a 20% pay cut. Pensioners in Greece are about to see their monthly cheques sharply reduced. Public sector workers in Greece are bracing for 15,000 layoffs. These are just some of the consequences of the “bailout” of the Greek economy, organized by the so-called “troika” – the European Commission, the European Central Bank and the International Monetary Fund (Ziotis 2012).

In return for drastic cuts in services and jobs, Greece will receive €130-billion ($175-billion) to prevent a default on looming payments required to service its government debt load of some €368-billion. But this bailout will not end the misery. The economy in Greece has contracted every year since 2008. This year the decline was supposed to slow to just three per cent. But a draft of the bailout agreement indicated that the rate of decline this year would be at least four per cent, and possibly higher. One statistic alone tells the extent of the problem – last year, 150,000 jobs were lost in small and medium businesses. This year, the figure is expected to be 240,000 (Reguly 2012).

The truth is, the bailout as designed is an extraordinarily clumsy and very damaging method by which to address the problems of the Greek economy. The European Union (EU), of which Greece is a member, has taken some of the steps towards creating a regional economy in their portion of the Eurasian continent. A key part of that process has been the creation, within the EU, of the Eurozone – a currency union whereby countries as different as Greece and Germany share the same currency, the Euro.

For a few years, there were some advantages for Greece Eurozone membership. It was, for instance, much cheaper to finance its public sector and corporate debt, with access to interest rates that were much lower than they would have been had the relatively small and weak Greek economy kept its own currency. But having the same currency as Germany also made the less productive Greek economy very vulnerable. It could not do what it did in the past – let its currency (formerly the drachma) devalue relative Germany’s (formerly the mark), and so keep the prices of its exports competitive. Locked into a currency union, the inevitable has happened –manufactured goods from Germany and the other strong economies in Europe pushing aside manufacturing based in Greece.

For a while, access to credit through membership in the Eurozone offset this problem. But over time, Greece’s public sector debt built up to 160% of GDP. To buy the bonds that finance that debt, bond markets began demanding higher and higher interest rates, triggering the current turmoil. The bailout will calm this problem for a while – but the structural problems behind the mess, are all intact.

To properly unify Europe, countries would have to share more than just their currency. Real union would involve the sharing of taxes and debt as well. This was the “federalist” solution of both the United States and Canada. In the former, the young post-revolutionary U.S. republic, guided by treasury secretary Alexander Hamilton, did mint its own currency, as the Eurozone has done with the Euro. But it also “assumed the war debts of the ex-colonies” and “issued new national bonds backed by direct taxes.” Interestingly, this summary of early U.S. federalism comes from a recent issue of the influential magazine, The Economist, which poses the question whether Europe might, “in its chronic financial crisis, need such a ‘Hamiltonian moment.’” (The Economist 2012a).

But the rich countries of the continent, Germany in particular, want none of this. The stronger economies in Europe are, for the moment, doing quite well in the context of this crisis. In 2011, it is likely that the value of German exports “breached the 1-trillion euro mark for the first time ever.” According to Anton Börner, president of The Federation of German Wholesale, Foreign Trade and Services (BGA), two areas of the world fuelled this growth: other countries in Europe (exports to other EU members represented just under 60 percent of all German exports), and “emerging economies.” In terms of the latter, concern over the weaker European countries has pulled down the value of the Euro, making German exports cheaper on the world market (Graupner 2012). What is bad for Greece, in other words, has been for the moment, good for Germany.

It won’t be enough to muse about federalism in the abstract. Between where Europe is today, and a federalist future, there is the obstacle of centuries of history. Modern Europe was created through 500 years of colonial conquest of much of the rest of the world, and that colonialism generated deep pools of racism and chauvinism. That chauvinism has again and again turned inward: German against French, against Italian, against Greek – the most horrendous example being the orgy of racism and anti-semitism which erupted in the Second World War (Du Bois 1965). The transition of the EU towards a real federation would mean the transference of sovereignty from the nation-states to the EU, and the historically-rooted deep pools of chauvinism and nationalism are a barrier to such a development.

This can be seen in the débacle associated with opposition to Turkish accession to membership in the union. There has never been enthusiasm for reaching out to Turkey. In 2005, fully 52% of people in Europe were opposed to Turkey’s membership. Of the original members of the EU, only 32% were in favour (European Commission 2005). Two things have fuelled this opposition. In the 1990s, the issue was Greek chauvinism. Greece was an established EU member long before Turkey. Turkey is an historic rival of Greece in the eastern Mediterranean. Greece therefore put barrier after barrier in front of Turkey’s membership. “The EU’s policies towards Turkey have become in effect those of Greece,” complained Turkey’s ambassador to London in 1997 (dyer 1997).

In the 21st century, the issue has shifted to anti-Islamic racism. Fully 99.8% of the Turkish population is Islamic, and from 9/11 2001 on, wars in Iraq and Afghanistan have been fuelled by wave after wave of anti-Islamic racism – Islamophobia – sweeping through North America and Europe. Turkish State Minister Mehmet Aydin raised this in 2007, saying that “there are politicians in Europe quoting extremist sources to justify their opposition to Turkey’s EU membership.” Among the politicians he targeted for using Islamophobia as a way of blocking Turkey’s membership, was the then French Interior Minister, Nicolas Sarkozy (Anatolia 2007).

The stagnant EU could certainly use Turkey right now. After China, Turkey is the fastest growing economy in the world, expanding at an average rate of 5.9% since 2002 (Staff 2012). That average would be much greater without the contraction of 4.8 percent during the 2009 recession. But in 2010 Turkey returned to growth, expanding at an 8.9% rate, in 2011 at a 6.6% rate. Turkey has a $1-trillion dollar economy along with a market of almost 80 million people (CIA 2012). It has a budget deficit that is less than 2% of GDP, and – in contrast to Greek’s figure of 160% – has “a public debt of only 40%” (The Economist 2012b). With these considerable economic strengths, had Turkey been allowed in, the entire EU, including Greece, would be considerably stronger as it dealt with the current crisis.

It is probably too late. In 2004, when Turkey embarked on the accession process for EU membership, two-thirds of the Turkish public supported membership. By 2007, this had fallen by almost half, to just 35% (Boland 2007). Another survey put support for the EU at 73% in 2004, but only 38% in 2010 (Bilefsky 2011). The events of 2011 and 2012 will solidify this trend. The crisis in Europe makes accession to membership in the European Union much less attractive. According to the founder of a conservative business group, “Today, the E.U. has absolutely no influence over Turkey, and most Turks are asking themselves, ‘Why should we be part of such a mess?’” This disillusion with Europe is coinciding with the beginnings of turn towards other states in the region. In 2004, just 12.5% of Turkish trade went to the Middle East. By 2010, the figure had increased to 20% (Bilefsky 2011). The Arab Spring could very well accelerate this shift.

Europe is being held back by its history. Until it comes to terms with that history – and the chauvinism and racism engendered by it – progress towards solving the problems in Greece and the other vulnerable economies, will be slow. This is the mess of a Europe designed by capitalists and technocrats. Only a politics of solidarity and resistance can begin the process of building an alternative.

© 2012 Paul Kellogg. This work is licensed under a CC BY 4.0 license.


Anatolia. 2007. “Turkish Minister Warns About ‘Islamophobia’, ‘Turcophobia’, in Europe.” BBC Monitoring European. London: BBC.

Bilefsky, Dan. 2011. “For Turkey, Lure of European Union Is Fast Fading.” The New York Times, December 4, sec. World / Europe.

Du Bois, William Edward Burghardt. 1965. The World and Africa: An Inquiry into the Part Which Africa Has Played in World History. New York: International Publishers Co.

Boland, Vincent. 2007. “The Feeling Is Mutual: Why Turks Are Growing Disillusioned with Europe.” Financial Times, January 4.

CIA. 2012. “Turkey.” The World Factbook.

dyer, Gwynne. 1997. “Denying Turkey Membership in the EU Is Foolish.” Waterloo Region Record, December 27.

European Commission. 2005. Eurobarometer 63.

Graupner, Hardy. 2012. “German Exports Reach Trillion-euro Threshold | Business | DW.DE | 10.01.2012.” Deutsche Welle.,,15656113,00.html.

Reguly, Eric. 2012. “Despite Second Bailout, Greece Is Still a Time Bomb.” The Globe and Mail, February 24.

Staff. 2012. “Turkey to Retain Its Low Credit Ratings | OANDA Forex Blog.”

The Economist. 2012a. “1789 and All That; Charlemagne.” The Economist, February 11.

———. 2012b. “Turkey’s Political In-fighting: Erdogan at Bay.” The Economist, February 25.

Ziotis, Christos. 2012. “Greece Draft Cuts Minimum Wage 20%.” Bloomberg, February 8.

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