by Ranjit Singh Sidhu
It has been a few years since the great financial crash, which started when the US financial houses saw the products they created out of junk and sold as pure gold turn back to worthless junk. One by one they were either scarified or saved, with a notable survivor being one of the biggest culprits of all: Goldman Sachs.
We can look back and see how the contagion spread across the world leading to government after government instinctively cutting back spending, this in turn leading to an inevitable spiral down first to recession and then to a depression, every area of the globe entering a period of unrest.
In Europe one country, being bound by a financial accord that meant it was dictated economically by others, suffers worst of all. Unemployment had risen from 8% to 30%, it has also lost 42% of it’s economic output. With the old political order seen as failing the people turn to alternative radical parties. In just 3 years one party that polled 2.3% now is on the edge of power: It has 1.4 million members and stands on the edge of gaining power with 37% of the vote.
The party is the National Socialist Party, the country Germany in 1932 ,the financial crash that of Wall Street 1929 ( and yes, Goldman Sachs was pivotal in selling junk in that crash as well) .
On the 31st of July 1932 the Nazi party received 37.4% of the vote and became the largest party in the Federal Elections. The German people’s rising anger towards the financial reparations of the Treaty of Versailles had been shown a few years earlier when the referendum calling for the abolition of the ‘Law against the Enslavement of the German People’ received 94% of the vote.
As Syriza goes about building a government, Greece stands with 30% of its economic output gone since 2009, unemployment at 26% and youth unemployment at 50%. We must not be deaf to history and what can arise when economic destruction is imposed on a country.
We should be thankful Syriza’s radicalism is an economic one, rather than a cultural radicalism based of ethnicity. Golden Dawn, the Greek neo-Nazi party whose party leaders are in jail is the third biggest party in Greece.
But there is cause for concern. Just look at what European financiers are saying about Greece.
In 2010, Alex Weber then Head of Bundesbank was quoted at Davos, stating:
“..that Germany had deployed the equivalent of its entire GDP on making a success of its national reunification…we should assume Germany will do the same to save and strengthen the eurozone”.
Now, in Davos 2015, the same Alex Weber, now Head of UBS was less ebullient saying :
“I think there will always be questions about the viability of the project and Europe has not done enough to dispel these concerns.”
Why such a change in approach?
In 2010, Greek government bonds, according to the Bank for International Settlements, held by banks was 96% owned by European banks, of which 69% was German and French banks. These banks having leveraged this government debt to take bigger and bigger risks were so big they could not have been bailed out – the largest three French banks had assets worth two and a half times the French GDP. In 2010 the idea of Greece leaving the Euro and the consequential effect on the banking system was not something that could be entertained.
Now, in 2015, the BdB (Federal Association of German Banks) head Thomas Kemmer put it clearly:
“The credit exposure of German banks in Greece is low, that’s why, should it come to insolvency for Greece, the direct effects on German banks could be overcome….even the contagion effects that would accompany an exit could be endured better than two or three years ago.”
A study by JP Morgan Securities examined the €410bn of total rescue packages for Greece since 2010 and found only €15bn had entered the real economy in Greece. The rest was used to bail out or protect private and official creditors.
This is, unfortunately, the frightening truth: austerity economics and the recapitalisation of Greek debt have served their purpose in buying time for the banks to get their books ready for any exit. German and French banks will be relatively safe if the screw is turned on Greece.
Syriza has been democratically elected with the mandate of the people. Let’s hope it will be with understanding that Europe, and particularly Germany, listen to the voices from history, shouting in their ears, when negotiating with Syriza.
As Alexis Tsipras, the leader of Syriza said, they want to stop the “national humiliation” of Greece. Let’s never ever forget the consequences of the humiliation Germany suffered a single lifetime ago.