Friday 17 June 2011

European crisis: Paul Mason on Greece

Paul Mason, BBC Newsnight's economics editor, has blogged from Greece five times in the last few days (see his BBC blog). I recommend reading all these posts, but if you read just one then make it 'Ten points on the Euro crisis', a thorough overview of the political and economic issues which grasps the global implications of the crisis centred on Greece.  

This extract from Wednesday's 'Greek state starting to lose grip on functions of state' captures, it seems, a great deal about the situation (though my impression is that Mason's 'slightly' in the opening paragraph is an understatement):

'There is a social crisis under way and I think it is different from the one our history books teach us to expect. It's not like the cracking of the state, or mass unrest, but simply that the Greek state - whose reach was never far into society - is beginning to lose its grip slightly on the actual functions a state should do.

It cannot decide its economic policy; it can't convince its own people of any good intent; the rule of law is imposed hard here - with the impounding of yachts bought through tax evasion - only to break down somewhere else, as people begin to pledge non-payment of bills for the privatised utilities.

It is not anarchy here, but - to use another Hellenic word - neither is there catharsis. As the conservative daily Kathimerini put it in an editorial last night: "Prime Minister George Papandreou does not seem to be on top of things anymore."

Actually the violence - though at a level several notches up from north-European rioting - remains like nearly all riots within a set formula: the rioters attack, the police fight back with stun grenades and gas, the rioters set fire to stuff, run away, the police control the streets, it goes dark…

But the violence is a sideshow: it is the political paralysis of the Greek government that is of world importance because - while the European Union bickers about how much bankers should lose versus how much the EU should lose as Greece defaults - you are seeing the lines of defence against financial and social chaos within this part of Europe getting very frayed.

A technical default for Greece looks close now - according to S&P even if Greece does everything it is asked to, its rating can never rise above CCC (which is junk). But in the policymaking circles the real worry is whether this will trigger a new round of credit failures. The Greek banks would collapse with any serious default on the debt; but the shock would also ripple through to north-European banks. And while most of them are in a shape to take the hit, not all of them are. And not all of the ones that look exposed are in states big enough to bail them out.

So with the recovery looking shaky across Asia, a credit event here in Greece could knock back sustained recovery even further. That's what my City contacts are worrying about in e-mails today.'


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