Last week the Greek parliament voted to approve an austerity program to procure additional loans from the IMF and World Bank in order to ensure the Greek government would be able to pay all the necessary bills. The situation in Greece stems directly from the worldwide crisis, caused by the bursting of the housing bubble in 2008. Greece, which has a widespread welfare-state, has had to make policy decisions at the behest of some of the world most powerful financial and political organizations, namely the IMF, World Bank, The European Central Bank and the European Union.
These measures, notwithstanding the newly past austerity program, have consistently been forced to adopt neo-liberal economic policies promoted by the aforementioned institutions. This has meant lower taxes on the wealthy and on corporations. It has also meant a drastic cutting of popular welfare programs utilized by the most venerable of Greek citizens. This movement has not lead to increased economic growth in Greece. In fact, since 2000 Greece has seen an overall decrease in its economic growth and a significant increase in unemployment.
In order to continue to provide for its citizens, Greece has been forced to borrow incredible sums of money from all over the world. Without the proper tax base, or a reevaluation of revenue increases combined with proper budget cutting, Greece’s debt has become overwhelming, and it found itself nearing default.
The recent program includes an increase of value added tax by 2 percentage points to 21 percent, cutting public sector salary bonuses by 30 percent and freezing state-funded pensions this year. Also, the tax rate on the wealthy will remain low, while a new sales tax – the most regressive of taxes – will be put in place on all goods as well as an increase in taxes on the Greek working class, which has struggled with an unemployment rate of above 15%.
The need for this program is promoted by the IMF and World Bank as well as the European Central Bank and the central banks of Germany and France (which hold much of Greece’s debt) stems from the theory that if Greece were to default on its debt, the consequences would be dire for financial markets around the world and horrific for Greece itself. Due to the interconnectedness of the globalized market, the argument goes that if Greece defaults, then other European nations in a similar situation as Greece (namely, Spain, Portugal and Ireland) would soon default as well, causing a domino effect in Europe and around the world.
The Domino Theory
In the midst of the Cold War, the domino theory was presented as the justification for massive military involvement by the United States all over the world. In 1954, President Eisenhower explained the basis of the theory when he said, “Finally, you have broader considerations that might follow what you would call the “falling domino” principle. You have a row of dominoes set up, you knock over the first one, and what will happen to the last one is the certainty that it will go over very quickly. So you could have a beginning of a disintegration that would have the most profound influences.”
For Ike, this was the threat of Communist expansion. As the Soviet Union continued to promote revolutions in Eastern Europe and began to create what was later called the “Iron Curtain,” the revolution in China and the subsequent revolutions that spread across Indochina seemed to indicate that once Communism took hold, it would expand. For the United States, this meant that to avoid the spread of Communism worldwide, it must be stopped where it was developing in order to stop the next domino from falling.
This is the exact same theory being promoted today in regards to the situation in Greece. However, as student of history will attest, the Domino Theory of the Cold War proved to be completely incorrect. The United States failed to stop Communism in Korea, Vietnam, Cuba and Nicaragua. After these unsuccessful attempts at stopping the Red menace, there were additional Communist revolutions, but these were mostly due to internal struggles within each individual nation. Also, the predication that Communism would spread around the globe proved untrue. Due to the totalitarian nature of Stalinism and the stagnation of the economies of the Warsaw Pact the people in these respective countries revolted against them and brought an end to the authoritarian regimes.
As the domino theory proved to be incorrect during the Cold War, the same is true today. In fact, there has already been a test of this theory. In 2008, just after the disastrous effect of the recession came into light, Iceland announced it would default on its debts. At the time this promoted pundits and economists to sound the horn of financial ruin. However, Iceland was able to reorganize itself, and the Atlantic island managed a return to international debt markets less than three years after letting its banks default on $85 billion.
The problem is two-fold. First, when one speaks of Armageddon, they get attention, and they can use this prophetic message to urge actors to do nearly whatever they wish. Second, those who promote this theory have shown their interests. The IMF, World Bank and the like are controlled by the most wealthy and powerful of the world’s elite. This means, that in order to avoid the inevitable default in Greece and subsequently the default of other nation-states, the wealth of the rich and powerful must increase.
The question is: why is this not an option on the table? The most one hears of some forgiveness and restructuring of the Greek debt. The simple answer is that a full forgiveness would hurt the wallets of those who need to keep the debt payments flowing in order to maintain their extravagant wealth. This, while the working class of Greece shows that it has had enough, yet seem to be unable to disrupt the institution of this dastardly program. Adding insult to injury, even with this program S&P has warned Greece of default, even though the program has allowed for the bailout. It appears that even this did not work, and the Armageddon continues! Where are Bruce Willis and Ben Affleck when we need them?