Going down fighting
George Papandreou has a reputation as a dogged campaigner, pushing along steadily until he gets what he wants. Even so, what he has achieved over the past few days is staggering. His government passed austerity measures that are unprecedented in their reduction of incomes and increase of taxes. In addition, in a series of meetings with foreign leaders, he has fought for political support that will help restore Greece’s credibility in foreign markets and, even more significantly, he also managed to put the international financial system itself in the spotlight. For months, from the PASOK government’s revelation that the 2009 budget deficit would be 12.7 percent, or double what the previous government had admitted, Greece has been on the defensive. The markets exacted a terrible price on the country’s debt, introducing the very real danger that soon Greece would not be able to obtain loans to stay afloat. Then, when it appeared that Greece would need guarantees or even a bailout from its EU partners, the country became a punching bag for every European citizen angered by the drop in living standards brought about by the global economic crisis. We saw this in German comments, in particular, where the Greeks were portrayed as profligate voluptuaries living large at the expense of the frugal Germans. But even as everyone was lining up to aim a kick at the Greeks, it became clear that Greece was not the only country in danger nor were its problems all of its own doing. No one – not even the most conspiracy-minded Greek – believes that Greece is not responsible for the debt that has brought it to the brink of bankruptcy. But gradually it emerged that some of the banks that were lending it money were also betting against the country’s ability to pay those loans, thereby pushing up the cost of our borrowing. Hedge funds, too, were speculating against Greece’s credibility, all of which was increasing the risk of bankruptcy. Spain, Portugal and Britain suddenly appeared as vulnerable as Greece – as did the euro itself, which began to lose ground against the dollar. Papandreou, in his indefatigable traveling, started pushing the message that despite Greece’s undeniable culpability, governments also had to face up to the danger presented by hedge funds and currency traders, whose relentless hunger for profits could trample nation states and even regional economies. In the past week alone, he presented his arguments to Chancellor Angela Merkel of Germany, French President Nicolas Sarkozy and US President Barack Obama. Now there is talk about regulating the use of credit default swaps (CDS) while the actions of ratings agencies and speculators that can jeopardize countries’ economies are on the agenda. Europe’s leaders are discussing ways to improve regulation of the markets and will raise the issue at the next G20 meeting. There is also talk of a European version of the International Monetary Fund to deal with crises such as Greece’s. Papandreou’s government finally woke up to the need to take drastic austerity measures that would assure Greece’s partners that Athens was serious about slashing its deficit. This has given the prime minister new credibility in talking with his foreign counterparts; although it has not immediately translated into cheaper loans, at least it allows Greece to keep borrowing. The higher taxes and spending cuts have met with a strong reaction in Greece and it is still unclear how things will develop when the measures begin to bite and demonstrations become more dynamic. Greece has a long and difficult road to travel on its own in an effort to reduce its debt and make its economy viable. When Papandreou returns from his travels, he will have to deal with the terrible hangover after the three-decade binge of easy money. But his achievement so far has been to restore a measure of Greece’s credibility while also showing the world that the attack that followed Greece’s fall was a danger not only to Greece but to Europe and the world itself. Greece will change, but it may just help change the international economy as well.