Bankruptocracy

Adults in the Room, Yanis Varoufakis’s account of his brief time as the finance minister of Greece, has all qualities of a tragedy. It is, Varoufakis writes,

“the story of what happens when human beings find themselves at the mercy of cruel circumstances that have been generated by an inhuman, mostly unseen network of power relations. This is why there are no ‘goodies’ or ‘baddies’ in this book. Instead, it is populated by people doing their best, as they understand it, under conditions not of their choosing. Each of the persons I encountered and write about in these pages believed they were acting appropriately, but, taken together, their acts produced misfortune on a continental scale. Is this not the stuff of authentic tragedy? Is this not what makes the tragedies of Sophocles and Shakespeare resonate with us today, hundreds of years after the events they relate became old news?”

But it’s hard to sustain the no-baddie claim as the book progresses. He describes the 2010 Greek bailout in stark terms: It was about “forcing new loans upon the bankrupt on condition that they shrink their income.”

Why force new loans on a bankrupt country? Because Greece’s creditors were the banks of France and Germany. If Greece went belly-up, so did the giant banks, and so did the EU. France and Germany convinced other European countries to contribute to the “bailout,” and then the French and German banks immediately started siphoning off money from Greece to repay their loans.

To cover their tracks, French and German banks brought in money from other European countries and from the International Monetary Fund: “of every €1000 handed over to Athens to be passed on to the French and German banks, Germany would guarantee €270, France €200, with the remaining €530 guaranteed by the smaller and poorer countries. This was the beauty of the Greek bailout, at least for France and Germany: it dumped most of the burden of bailing out the French and German banks onto taxpayers from nations even poorer than Greece, such as Portugal and Slovakia. They, together with unsuspecting taxpayers from the IMF’s cofunders such as Brazil and Indonesia, would be forced to wire money to the Paris and Frankfurt banks. Unaware of the fact that they were actually paying for the mistakes of French and German bankers, the Slovaks and the Finns, like the Germans and the French, believed they were having to shoulder another country’s debts.:

At least, some argue, Europe’s banks didn’t behave as badly as America’s. Varoufakis disagrees: “Europe’s banks were managed so atrociously in the years preceding 2008 that the inane bankers of Wall Street almost look good by comparison. When the crisis hit, the banks of France, Germany, the Netherlands and the UK had exposure in excess of $30 trillion, more than twice the United States national income, eight times the national income of Germany, and almost three times the national incomes of Britain, Germany, France and Holland put together. A Greek bankruptcy in 2010 would have immediately necessitated a bank bailout by the German, French, Dutch and British governments amounting to approximately $10,000 per child, woman and man living in those four countries. By comparison, a similar market turn against Wall Street would have required a relatively tiny bailout of no more than $258 per US citizen. If Wall Street deserved the wrath of the American public, Europe’s banks deserved 38.8 times that wrath.”

The European banking system was also designed to prevent the European Central Bank (ECB) from absorbing bad debt:

“Washington could park Wall Street’s bad assets on the Federal Reserve’s books and leave them there until either they started performing again or were eventually forgotten, to be discovered by the archaeologists of the future. Put simply, Americans did not need to pay even that relatively measly $258 per head out of their taxes. But in Europe, where countries like France and Greece had given up their central banks in 2000 and the ECB was banned from absorbing bad debts, the cash needed to bail out the banks had to be taken from the citizenry.”

This, he explains is “Europe’s establishment is so much keener on austerity than America’s or Japan’s. . . . It is because the ECB is not allowed to bury the banks’ sins in its own books, meaning European governments have no choice but to fund bank bailouts through benefits cuts and tax hikes.”

Thus Europe became a “bankruptocracy,” a regime in which “the more insolvent a banker was, especially in Europe, the greater his chances of appropriating large chunks of income from everyone else: from the hard-working, the innovative, the poor and of course the politically powerless.”

In the aftermath, the radicalization of European politics seems almost inevitable.