Vol. 74/No. 20      May 24, 2010

In a sign that Washington is concerned the crisis may cross the Atlantic, the U.S. Federal Reserve also reinstated a program that supplies short-term credit to European banks. U.S. capital has the largest financial stake in the IMF.

These moves came just days after the EU and IMF had pledged $140 billion in loans to the Greek government, which faces a $10.8 billion loan repayment May 19 that it is unable to cover. On April 27 Greece’s debt rating was downgraded to “junk” status and a few days later the ratings for Spain and Portugal also plummeted. In the midst of the Greek crisis the euro fell to a 14-month low. Fearing a much wider collapse, the German government, which has the EU’s strongest economy and which had balked at loaning Greece money, agreed to do so.

On May 5 the Greek government agreed to terms for the loans that offer a preview of what workers in other capitalist countries will face as the world capitalist depression grinds on—big wage cuts, fewer jobs, smaller pensions, higher retirement ages, and higher taxes. The IMF projects that the Greek economy will contract 4 percent this year and another 2.6 percent next year. After three years of the approved austerity plan, “Greeks will have a debt to gross domestic product ratio of 149 percent… . That is 25 percent higher than today and even more cosmically unsustainable,” said the Financial Times.

Greek trade union officials pledged to continue demonstrations and strikes against these attacks, and warned of “a social explosion,” in the words of Ilias Iliopouolos, secretary general of the public workers union ADEDY. Despite this bluster, union officials are primarily using the protest actions to let workers blow off steam.

Yannis Panagopoulos, president of the GSEE union, the largest in the private sector, has said he objects to the cuts because they are “unfair” and do not fall “evenly” on both workers and employers. Both unions back the governing Panhellenic Socialist Movement.

The IMF loan to Greece—$40 billion—is the largest it has ever made to any country and its first to a country in the euro zone. In return the IMF imposed onerous conditions on Greece: a “significant” cut in military spending, reduction of entry-level wages for workers, reduction of tariffs on trade in pharmaceuticals, engineering, transportation, and other businesses, and publication on the Internet of the losses of state-owned Greek companies. The purpose of the latter is to pressure the government to privatize those enterprises.

The decision of German chancellor Angela Merkel, of the Christian Democrats, to loan Greece nearly $30 billion—the highest amount after the IMF—produced a sharp debate in Germany. The rival Social Democratic Party called for members of parliament to abstain on the proposal.

One result of that decision was a 10 percent drop in votes for the Christian Democrats in a regional election May 9 in the industrial North Rhine-Westphalia region. That may cost Merkel her majority in the upper house of parliament.

In a May 10 Financial Times column titled “America has good reason to worry about Greece,” Clive Crook wrote, “Suppose Greece defaults. That will spread losses across the European banking system. Pressure to default could mount on other European countries, starting with Portugal and Spain … Just how badly U.S. banks and non-banks are exposed to all these risks … may be unclear until it happens.”  
 
 
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