Greece in crisis - Part One: George Soros's medicine - worse than the disease

Greece has been in and out of the news headlines, as other more pressing events push it into the background, such as the ongoing crisis in the Middle East, or the risk of a Brexit vote in the UK referendum on the EU, or the tumultuous class conflict gripping France. Nonetheless, Greece remains the weak point within the EU. Its crisis is being “managed”, i.e. delayed, but the country moves inexorably onwards towards a major crisis that will affect the whole of Europe.

I travelled to Greece last year in October and again recently in early June. I have gathered notes on various aspects of the ongoing Greek drama and I plan to publish them in parts in the next few weeks, this being the first instalment.

Earlier this year The New York Review of Books published a revised version of “an interview between George Soros and Gregor Peter Schmitz of the German magazine WirtschaftsWoche.” The original interview in German is available here. The interview makes for some interesting reading, as Soros is an astute bourgeois who analyses the interests of the class he belongs to. Very often, the more intelligent bourgeois commentators come close to the same conclusions as Marxists, but obviously from a diametrically opposed class point of view.

Commenting on the way the EU authorities have been managing the crisis, he points out that Angela Merkel was correct in predicting that “the EU is on the verge of collapse.” That is one hell of an optimistic way of introducing his comments on the crisis that is gripping the European Union! He refers to the European authorities as “muddling through one crisis after another”, and then goes on to say,

“This practice is popularly known as kicking the can down the road, although it would be more accurate to describe it as kicking a ball uphill so that it keeps rolling back down. The EU now is confronted with not one but five or six crises at the same time.”

He is referring here to the crisis in Greece, the position of Russia and the Ukraine, the British referendum on whether to stay in the EU or leave, the migration crisis and the looming crises in countries like Spain, Italy and others.

He has no qualms in describing the European Union for what it is. He explains what it was supposed to be: “The European Union was meant to be a voluntary association of equals…” and then goes on to explain that the euro crisis “turned it into a relationship between debtors and creditors where the debtors have difficulties in meeting their obligations and the creditors set the conditions that the debtors have to meet. That relationship is neither voluntary nor equal.”

Here he is clearly describing the relationship between a weak economy like that of Greece and the powerful economic juggernaut at the heart of the EU, Germany. The events of the past eight years demonstrate that Greece is not at all an equal partner within Europe, that its elected governments are not free to act as they wish. Those who decide the Greek government’s economic policy are sitting on the boards of directors of German banks, not on the benches of the Greek parliament.

Soros has made a lot of money from his investments over the years. How has he made his money? According to Investopedia:

“George Soros gained international notoriety when, in September of 1992, he risked $10 billion on a single currency speculation when he shorted the British pound. He turned out to be right, and in a single day the trade generated a profit of $1 billion – ultimately, it was reported that his profit on the transaction almost reached $2 billion. As a result, he is famously known as the ‘the man who broke the Bank of England.’ Soros is also famous for running the Quantum Fund, which generated an average annual return of more than 30% while he was at the helm. Along with the famous pound trade, Soros was also cited by some as the ‘trigger’ behind the Asian financial crisis in 1997, as he had a large bet against the Thai baht.”

That is a nice way of saying that he is a speculator that makes money out of other people’s misfortunes. Again Investopedia says the following about him:

“When he fully retired in 2000, he had spent almost 20 years speculating with billions of other people's money, making him - and them - very wealthy through his highly successful Quantum Fund. He made some mistakes along the way, but his net results made him one of the world's wealthiest investors in history.”

In The New York Review of Books interview quoted above he explains his approach:

“Once you are aware of the dangers, your chances of survival are much better if you take some risks than if you meekly follow the crowd. That is why I trained myself to look at the dark side. It has served me well in the financial markets and it is guiding me now in my political philanthropy. As long as I can find a winning strategy, however tenuous, I don’t give up. In danger lies opportunity. It’s always darkest before dawn.”

This reveals the true mind of a skilled capitalist speculator. He is prepared to look at very difficult economic scenarios, at countries in great difficulty, to see how much money he can make from them. And this is where the interesting point about Greece comes in his interview. When the interviewer asks him, “What’s your winning strategy for Greece?” he honestly replies “Well, I don’t have one.”

He explains that,

“When the Greek crisis originally surfaced toward the end of 2009, the EU, led by Germany, came to the rescue, but it charged punitive interest rates for the loans it offered. That is what made the Greek national debt unsustainable. And it repeated the same mistake in the recent negotiations. The EU wanted to punish Prime Minister Alexis Tsipras and especially his former finance minister Yanis Varoufakis at the same time as it had no choice but to avoid a Greek default. Consequently, the EU imposed conditions that will push Greece into deeper depression.”

This is his opinion of the Greek crisis, but does that mean that he would never invest in Greece? The interviewer asks him, “Is Greece an interesting country for private investors?” His answer is a very revealing one, “Not as long as it is part of the Eurozone.” That does not mean that he would never invest in Greece. He explains that, “With the euro, the country is unlikely ever to flourish because the exchange rate is too high for it to be competitive.”

This no doubt is part of his looking at the “dark side” of situations. What he is saying is the following. So long as Greece attempts to remain within the euro, which means it cannot devalue its currency, it will never be able to compete. So his solution, from the point of view of a capitalist speculator, is for Greece to leave the euro, return to the drachma and allow its currency to massively devalue. That would then mean that in euro or dollar terms the cost of labour in Greece would be massively reduced. Workers would become very cheap, but also their purchasing power would be massively reduced, leading to further suffering of working people.

Last year, shortly before the July referendum in Greece, The Huffington Post published an article, 12 Devastating Consequences if Greece Returns to the Drachma. This is the scenario it depicted:

1. Rapid devaluation of the drachma against other currencies (the rate might surpass 1,000 ΔΡΧ/1€). An attempt to tie the drachma to the euro and lock the conversion rate is doomed to fail (as it failed in the case of Argentina), because of the huge capital flight and depletion of foreign exchange reserves.

2. The devaluation will lead to skyrocketing inflation at levels equal and greater than 40 percent, further limiting thereby the purchasing power of citizens.

3. Capital flight and a sharp increase in non-performing loans will be the coup de grace for the weak country’s financial system, which would collapse, “drying” the real economy.

4. In such an eventuality the wage and pension freeze payment will be inevitable for a while until the partial restoration of liquidity. The consequences from social unrest that will likely follow are unpredictable.

5. Gross domestic product will likely shrink to about 2/3 of the current level.

6. The public debt of Greece, totaling 322 billion euros, will increase automatically depending on the amount of the depreciation of the drachma, multiplying our borrowings.

7. Even if, after bankruptcy, a partial debt restructuring follows, it will not be painless. It will be accompanied by a new rescue package (only from the IMF now) and very burdensome fiscal adjustment measures.

8. There will be an equal increase of private debt through the skyrocketing of lending and depositing rates in an effort to control inflation. Higher interest rates will also make it difficult for businesses to raise capital.

9. Suffocation of import business due to a weakened market, the devaluation of the drachma and the obvious lack of credit.

10. Failure of imports will bring shortage of essential items on the market since, as we know, Greece is not self-sufficient in raw materials and meets its needs (e.g. wheat, milk, meat) by imports from foreign countries.

11. Invasion of predatory foreign investors, who will acquire companies, property, and public property at derisory prices. It will lead to a sellout of the country, now claimed by the proponents of the drachma.

12. Diplomatic and economic isolation of Greece, who, being in a very difficult situation, will not be able to follow geopolitical developments in the region, as well as any challenges by its neighbors.

Point 11 describes what “predatory” speculators like Soros would do. They would invest in Greece only when it hits rock bottom. This is no consolation for anyone seeking a solution to the problems faced by Greek workers, peasants, youth and unemployed. It would mean a massive collapse in their living standards, out of which only a small minority at the top would benefit.

Such a scenario would unleash revolutionary forces from below and put the class struggle back on the agenda in a way we have not seen possibly since the Civil War days.

All this, of course, explains why the European authorities have, so far, adopted the policy of “kicking the can down the road”! For the difference today is that the Greek working class is far stronger than it was at the time of the Civil War. Its specific weight in society has massively increased and objectively speaking the balance of class forces has never been so favourable for the workers. This means the bourgeois has to tread carefully. That does not mean the bourgeois will end its incessant pressure on the Greek working class, but it will try to manoeuvre, applying the austerity measures while at the same attempting to keep Greece afloat. This cannot continue forever, however, and sooner or later all the underlying contradictions must come to the surface in a serious crisis and possible collapse of the Greek economy. But more on that later.

[To be continued…]