Big countries have a history of making small countries pay their debts. Historically it does not matter whether loans were taken out voluntarily or whether they were imposed via some imperial gunboat diplomacy, but there should be no doubt that economic giants like to uphold a contract. When the once powerful Ottoman Empire defaulted on its obligations to French and British bondholders in the 19th century, the two great European powers promptly set up an Ottoman tax collection agency and effectively launched a financial coup d’etat on the Sultan and his flagging empire. The new Ottoman Public Debt Administration (OPDA) was launched in 1881 to ensure that foreign creditors would receive their dues, and grew into a vast bureaucracy of almost 10,000 employees. In addition to debt collection the OPDA also branched out into wider financial affairs and became an important intermediary for European companies looking to invest in the Empire. Due to its vast reach in the Ottoman public service, the OPDA guaranteed both financial security and favourable commercial opportunities for its partners. What began as a debt default morphed into an imperial occupation in all but name, with contractual obligation and trade opportunity being the core principles. It mattered little that much of the Ottoman Empire’s public debt had been acquired through its role in the Crimean War, a conflict in which it fought side by side with both the British and the French. A deal was a deal, and when the Ottoman Empire ultimately defaulted on its debt, its ‘allies’ swooped in to enforce repayment.
I was reminded of this financial colonisation last week with Wolfgang Schäuble’s offer to send 500 German tax collectors to Greece. The circumstances are obviously different but perhaps there are still parallels we can draw. Greece entered the Eurozone in collaboration with its European partners in celebration of the collective vision of European integration. Countries across the continent came together to become firm economic allies, united by a shared currency. It has subsequently become clear to all however that Greece did not meet the original economic requirements for euro membership. Allegations arose that the Greeks had cooked the books and worked with Goldman Sachs on a deal which involved cross-currency swaps at fictional exchange rates. This enabled them to circumvent the Maastricht rules and ‘meet’ the Eurozone requirements. Military and healthcare expenditures were often left off the balance sheets over the years as accounting fraud helped to maintain the illusion of financial stability. None of this is anything new of course and Angela Merkel has expressed her belief on multiple occasions that Greek euro membership should never have been approved.
Whichever way you look at it, the story of Greek entry into the Eurozone is a tail of profligacy, corruption and economic folly which reflected many years of unsustainable practice and laid the groundwork for a turbulent future. But it is now clear to all that from the ashes of this mess must arise a range of reforms to secure the country’s economic future and avert a humanitarian disaster. And it is this sentiment, this consciousness of the Greek people themselves, that brought in a new government at the end of January: a new government that has committed to fight corruption, clamp down on tax evasion, and loosen fiscal restraint in order to boost public services and growth. Syriza has promised to be a break from the past and a move away from the bloated, non-transparent inefficiency of so many recent years.
And yet, despite the Greek government’s commitment to structural and economic change, its creditors have not evolved in their debt collection methodology since the days of the Ottoman Public Debt Administration. Contractual obligation in international finance markets still trumps national sovereignty when it is the rich countries that are due repayments. But times have changed. Syriza was brought to power in a democratic election, with the people of Greece delivering a strong show of support for its manifesto. In recognition of past folly, Syriza has shown willingness to bend in order to assuage the doubts of its European partners while still having the freedom to pursue its electoral mandate. And it has bent beyond what seemed possible just a couple of weeks ago. Gone is the talk of a 50% debt ‘haircut’ and in its place are talks of growth-linked bonds and adhering to 70% of the former government’s commitments. But as a democratically elected government Syriza cannot yield fully to the demands of its euro creditors without completely sacrificing its electoral pledge to its voters. And it is this fundamental point which has been either ignored or misunderstood by the creditors.
Over the last few days, opinions on Greece’s fate within the single currency have oscillated widely. Many, including myself, felt that the Wednesday meeting of the Eurogroup may have revealed the first sign of compromise on both sides. Indeed, although nothing was officially announced I still believe that this meeting was an important step towards finding some sort of short-term accord to be finalised in the next meeting on Monday. But we are still none the wiser as to whether Germany and its co-creditors will hand Syriza some flexibility to maintain its credibility as the elected representative of the Greek people. As always, the Economist has weighed in on the issue and rightly states that “keeping Greece in the euro will require compromises. Greece’s creditors need to decide what to trade, and when.” This is a crucial point and echoes my opinion that the creditors will ultimately compromise but only once they have squeezed Syriza dry on their end. But the Economist advice disregards events on the ground: “Here, then, is a simple message for European leaders to give Mr Tsipras. They will negotiate, but only once the bail-out is extended.” If Tsipras extends the bailout he will have done an almost complete U-turn on his pre-electoral pledges and will have blown his credibility in front of the Greek people. It is hard to see how his government would be able to survive under such circumstances.
The better compromise would be for a new bridging loan to be agreed which would be linked to some measure of mutually agreed reform on the Greek side. This would give all sides room to continue negotiations while allowing both to claim some measure of temporary victory. If the creditors really feel that they can bend Syriza to their will then they are making a considerable mistake. If Greece reverts back to the original bailout conditions then democracy will have been crushed and people across Europe look ready to stand together in its defence. Protests are already growing in support of Syriza in many of Europe’s major capitals and a victory for austerity politics could unleash a social explosion. What longer-term changes this could bring are as yet unknown but Yanis Varoufakis has already raised the prospect of a fascist uprising biding its time in the background.
Perhaps this sounds like hyperbole but growing discontent over what is perceived to be a disregard for democracy should not be underestimated. When the instruments of social protest are unleashed there is no telling where they may lead, particularly in Greece’s tempestuous socioeconomic climate. Surely the ensuing social and political contagion could not be risked and so the best short-term outcome for all is a face-saving boost to the Greek coffers while the deeper financial issues are discussed. If this does not happen, and the European creditors insist that all commitments are met in full, then perhaps Greece will have truly become an Ottoman Empire for the 21st century. It will be a state so completely at the mercy of its creditors that its citizens and legal government become nothing more than statistics on the balance sheets of its creditors.
To consider why pushing Greece to the brink may be crucial to troika strategy we can again look to history. The 26th President of the USA, Theodor Roosevelt, is often remembered in the guise of his cowboy image, but it is in international relations and the so-called ‘Roosevelt Corollary’ that one of his most important legacies lies. Originally designed to halt European influence in Latin America, this policy supported US intervention in South and Central America, particularly to ensure that debts were repaid in full. In one of its first acts in 1904, gunboats were sent into Santo Domingo to take control of customs revenue collection after the Dominican Republic had defaulted on its debts. This act of force showed the world that the US would uphold creditor’s rights and gave a massive boost to the prices of Latin American bonds. Investors could rest easy that one way or another they would get their money.
There is no chance we will see European military presence in Athens in the event of a Greek default, but the troika’s debt recovery strategy is not unlike Roosevelt’s. Crushing Greek resistance would be a clear demonstration that there is no compromise on Eurozone debt and principles, and that the bonds of its members are a safe investment. Capitalism has no room for sentiment or humanity and if money is owed it will be recovered without regard for democracy, citizens or popular opinion. But history also shows us that democracy and the rights of nations and their people cannot be infringed indefinitely. Current protests throughout Europe show that citizens are not in tune with their politicians and the longer this misalignment of values continues, the greater will be the basis for people to take matters into their own hands. Perhaps next week we will have a clearer picture of where Greece’s future lies in the European framework. Until then, anger, discontent and resentment will simmer, ready to be unleashed if European democracy is finally subjugated to neoliberal ideology.