you're reading...

The second Greek default


By Guido Viale

Focused on the resignation of Mario Monti and Silvio Berlusconi’s return from the dead (in a metaphorical sense, of course), Italy’s national press gave little importance to a story that instead deserved so much more. For the second time within a year or so the Greek state has defaulted: that is, it restructured its debt in a move which elsewhere would be called default, deciding to repay only a small part of a maturing debt, a kind of “agreement among creditors”. All dictated by the Troika (European Central Bank, IMF and European Commission), the German Government and of all the other States that in the past three years have forced Greece, its economy and its people, to go to the dogs.

If that restructuring had happened three years ago, at the same cost, the Greek economy would still be standing and the Euro and the European Union would not have suffered the repercussions that have led the entire continent (including Germany: there too the crisis is coming) to suffer the so-called double dip, a relapse into a crisis much worse than the first.

But who is responsible for this situation? Pundits such as Jean-Claude Trichet and Mario Draghi, former and current ECB Presidents respectively, and former European Commissioner and Goldman Sachs advisor Monti, who live only for bond spreads and money, and know nothing of the blood flowing in the veins and bodies of the people who they govern, or rather, whom they administer. None of them foresaw the crisis, not the first, not the second. And Monti, after the first Troika Memorandum that put Greece on the ropes, argued that the country had finally embarked on the road to recovery. Thus, once Italian Prime Minister, he has worked, and is still working to take Italy down the same route, claiming, of course, that he is saving the country.

But the mechanism for this second default by Greece is very interesting. The Greek government bought back a large amount of Greek government bonds (now considered waste paper) paying less than a third of their issue value. To do this it used funds granted by the European ‘rescue fund’, the ESFS, which in turn received its funds on loan from the ECB. These funds are guaranteed by all eurozone states, whose debts have thus increased in proportion to their GDP. So far, nothing wrong: solidarity, you might say.

But who ended up with the funds with which the Greek government bought back those bonds? In part, the Greek banks brought to the brink of bankruptcy for speculative transactions they carried out in past years. For this reason the Greek government is going to support them with another tranche of a new loan from the Troika, using in this case the ESFS funds. With this, on the one hand the banks lose out, because they sell for 10 what they had bought a 30 (but in reality were not worth anything any more). On the other hand they are rewarded with fresh money that they will never be able to return (but, perhaps, they will use it in new speculative transactions).

But in part, the Greek government bought Greek government bonds from hedge funds which had bought them for nothing from others who still held them, or sure in the knowledge that they could sell them at a much higher price, even if less than their nominal value, once the Troika had forced the Greek government to buy them back.

It is these same hedge funds that with their manoeuvers rule the so-called “markets”, with ‘shorting’ operations: that is, by selling securities that they don’t yet own or buying them without the money to pay for them, playing on the ups and downs of the spreads [gap between interest rates on different bonds] that they themselves cause with their operations.

In essence, the circle of debt is this: the Monti Government, and before him, Berlusconi takes from pensioners, workers, students and the unemployed to reduce public spending and pay interest on the debt.

The ECB, on the one hand, provides free funds to banks who buy that debt, obtaining a hefty interest; on the other it finances, again at no cost, the ESFS, which funds the Greek government, which buys its securities at a price that earns astronomical sums for speculators who have bought them for a few euros. For the footloose finance industry, what Monti – and the Monti that will come after him, and Berlusconi who came before him – deprives workers, the unemployed and pensioners to put money in the pockets of speculators who use these funds to put the country on the ropes.

It is a well-tested mechanism. Argentina, which has just passed a law that prohibits any form of speculation, banning the use of money other than for the financing of productive enterprises or households, is again on the brink of default, despite the fact that its economy has begun to work again, thanks to the popular revolt against the recessive policies adopted in the past.

Why? A U.S. Court has brought a default action that threatens the seizure of funds and assets of Argentinian businesses, for example bank accounts to finance normal international trade, or ships and aircraft, with their cargo, when they land or disembark abroad. The ruling sides with hedge funds claiming full payment – at the original value plus interest – for Argentinian government debt (the so-called “Tango bonds) they own: securities that they bought at almost zero cost to investors, who had not accepted (thus losing the entire value of their investment), a proposed deal years ago by the Government of Argentina.

What this shows that without a restructuring of our debt, carried out before it is imposed, as in Greece, as a means to save ailing banks and fund speculators, Italy cannot adopt any real independent policies: economic, industrial, social, cultural, or even civil (we will always be hostage to the Vatican, which knows a lot about high and low finance). And even less promote a programme of ecological conversion, necessary to restore world social justice and environmental sustainability.

This is the fundamental difference between those who have joined the bandwagon of Italy’s center-left, which is the same as Monti, and those who understand that a different world can only come from a determined challenge by all the countries of the Mediterranean to the rules and constraints that international finance has imposed on them, and that are condemning the economy and civil society of an entire continent.

Il Manifesto (14 December 2012)

Translation by Revolting Europe

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or email [email protected]


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Connecting to %s

Twitter Updates

  • Revolting Europe is taking a break and wishing you seasons greetings wp.me/p1bMfw-1tt 1 week ago
  • A Week in Revolting #Europe paper.li/tomgilltweets/… #protest #austerity #spain #greece #italy #portugal #banks #cyprus #france #politics 1 week ago
  • #Italy: Wages continue to fall in real terms as Nov inflation outstrips increase in pay packets. ANSA ansa.it/web/notizie/ru… via @ansa_topnews 1 week ago
  • Monti forever | Revolting Europe wp.me/p1bMfw-1tp #Italy #politics 1 week ago
  • Protesters angry at #Spain's " hunger budget" (VIDEO) youtu.be/WbPjCQRitWE via @youtube 1 week ago
  • Privatizing healthcare reforms spark more protests in Madrid | euronews video euronews.com/nocomment/2012… 1 week ago
  • #Spain: #Protestors hold mock "funeral march"as Govt passes €39bn austerity package au.finance.yahoo.com/news/protests-… In pictures publico.es/447778/la-prot… 1 week ago
  • Austerity to claim another EU govt? Future of Czech government left hanging after it increases taxes & cuts spending bit.ly/UK53jt 1 week ago
  • RT @ekathimerini MPs vote to drop Lagarde list probe demande by #syriza dlvr.it/2g8wwH #cronycapitalism #greece 1 week ago
  • Greece's children pay for #austerity. RT @ekathimerini Schools left without heating dlvr.it/2g95P2 #education 1 week ago
Follow @tomgilltweets

Enter your email address to follow this blog and receive notifications of new posts by email.


Round up of news and comment in words, video and images

Wealth Inequality in Europe

Get the key facts and figures


A different take on European issues

Italy’s Healthcare Crisis

Health services are ‘close to collapse’ in Rome, Turin and Naples after years of cuts and privatisation.


99% of the 167 000 Madrilenos who signed a petition rejected the sell off local water company

Filthy Rich

France's Bernard Arnault of the Louis Vuitton Moet Hennessy (LVMH) empire is worth $41 billion. Check out Europe's rich list


Private banks receive half-trillion-euro gift from ECB


Arménio Carlos of CGTP led a general strike in Portugal on March 22


Workers are on a go-slow over privatisation

Massive Spanish protest

Half a million take to the streets over labour market deregulation


Hundreds of workers occupied the factory of ArcelorMittal in Florange in the north of France

International Workers Day 2012

International Workers Day 2012


Anti-social Europe in numbers

RSS Watching Corporate Europe

  • The Commission’s shabby implementation of UN rules for tobacco lobbying
  • Profiting from injustice
  • 20 years of Single Market: is there anything for Greeks to celebrate?

RSS Hate Crimes in Europe

  • Far-right vacuum could trigger 'lone-wolf' attacks (UK)
  • Anti-Islam Policy Wilders’ Priority in 2013 (Netherlands)

RSS Fight discrimination in Europe – Amnesty Int’l

  • Listen to Roma Rights
  • PUBLIC STATEMENT: Kosovo: Amnesty International condemns attack on freedom of expression

RSS Discrimination: legal news

  • United KingdomThreat to Enforcement and Remedies in Discrimination Cases (PDF 47 kB)
  • United Kingdom - Doing away with Mandatory Impact Assessments (PDF 45 kB)
  • Turkey - Members of the newly established Human Rights Institution of Turkey are appointed (PDF 60 kB)


in Italy the home is a very dangerous place to be


Workers down tools over PM Monti's attack on labour rights


Concentration camps and a massive migrant marine cemetery





Read the statement by Lafontaine and Melenchon

PM Rajoy One Year On

Spaniards are not impressed








The Dossier