Greece is being asked to do what Latin America did in the 1980s

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The Greek social-democratic government of PASOK is facing a massive general strike today and a crucial Parliamentary vote tomorrow Thursday (May 6th).

One aspect of the Greek situation that has received very little attention in the Irish and International Press is the fact that Greece is one of the major arms purchasing states in Europe spending billions of € in all kinds of weaponry.

One almost secret aspect of the Greek Government discussions with the IMF has been this issue of arms procurement. The IMF Chairman Dominique Kahn has apparently indicated that Greece cannot continue buying submarines, ultra modern aircraft and the most up-to-date weaponry while receiving €110 billion of loans.

In the latest available public statement, Greek Minister of Defence Venizelos had announced last February that the Greek defence budget, incorporating procurement, maintenance and wages for the armed forces was an incredible €6 billion – or 2.8% of the GDP – a higher percentage than either France or the UK.

Leaked information from the IMF talks indicates that they are discussing a cutback of around €700 million for the current year. Every flight of a military aircraft, and there are dozens every single day, is estimated to cost the Greek taxpayer around €35,000!

In another development, the Greek Ministry of Defence has been negotiating with Germany to get back some of the €2billion spent on two German submarines – one of which has proven to be unusable….. while most analysts expect that defence expenditure will be cut by around 10% by the end of the year, opinions on the feasibility of such a measure are as yet very divided.

Donagh adds…

Martin Wolf in the Financial Times tells us that the package agreed on Sunday “is overtly a rescue of Greece, but covertly a bail-out of banks.”

“Greece is being asked to do what Latin America did in the 1980s. That led to a lost decade, the beneficiaries being foreign creditors. Moreover, as creditors are now paid to escape, who will replace them? This package will surely fail to return Greece to the market, on manageable terms, in a few years. More money will be needed if debt restructuring is unwisely ruled out.

For other eurozone members, the programme prevents an immediate shock to fragile financial systems: it is overtly a rescue of Greece, but covertly a bail-out of banks. But it is far from clear that it will help other members now in the firing line. Investors could well conclude that the scale of the package required for tiny Greece and the overwhelming difficulty of agreeing and ratifying it, particularly in Germany, suggest that further such packages are going to be elusive.”

And

“If the eurozone is willing to live with close to stagnant overall demand, it will become an arena for beggar-my-neighbour competitive disinflation, with growing reliance on world markets as a vent for surplus.”

Also, from the Financial Times, Adam Tooze, author of Wages of Destruction The Making and Breaking of the Nazi Economy on the role Germany must take in order to resolve the crisis in the Eurozone:

“Consolidation clearly must come. But it must be co-ordinated. While others contract, Germany’s role ought to be that of a growth locomotive. A low-inflation, export-driven model of growth was an appropriate policy in the face of Germany’s national disaster in 1945. It was contained within the Bretton Woods system thanks to America’s accommodating current account balance. In 2010, such a policy is fundamentally at odds with Germany’s role as the anchor of the eurozone. The challenge for the German political class is to complete the modernisation that it has achieved in so many other areas of policy. It must overcome the last legacy of the Adenauer era in its knee-jerk commitment to fiscal conservatism. In this crisis, authoritarian China has demonstrated a remarkable aptitude for global economic leadership. It would be a tragedy if Europe’s leading democracy, a title to which Germany can rightfully lay claim, were to continue to abdicate its responsibility.”

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8 Responses

  1. Pope Epopt

    May 5, 2010 4:04 pm

    The size of both Germany’s arms business and Greece’s military expenditure are eye-watering. At least, on a parochial note, we in the Republic are not burdened with an expensive military.

    Unsustainable debt is unraveling, and fast. The German parliament is still stuck in a ‘who let the Greeks into the EU’ pissing competition, so not much of a coordinated locomotive in sight.

    Meanwhile the plague-rats are going for Portugal next.

  2. Michael Burke

    May 5, 2010 6:01 pm

    Greek military spending in total comprises 6.5% of GDP, compared to an EU average of 1.6%. redcng it to the EU avrage would halve the deficit. More than half the hidden overspend since the Euro was on the military.

    This is not like Ireland.

    At the same time, the ultra-wealthy in Greece and its main export industries like shipping are tax exempt (shipping 100%). This is like Ireland. Bringing these under normal taxation rates would make Greece solvent overnight.

    The strictures from the IMF on military spending are interesting. It may be significant that this prohibition has not come from the EU. On the contrary, as Reuters reports, France and Germany have been insisting Greece buy armaments from them, even as part of the bail-out negotiations.

    http://www.reuters.com/article/idUSTRE62M1Q520100323

  3. Conor McCabe

    May 5, 2010 8:06 pm

    Pope Epopt, we may not be burdened with an expensive military at the moment, but as we voted for the Lisbon Treaty, we are now legally bound to increasing our annual spending on the military. Article 28a. It was put in to help the EU arms industry.

    now this doesn’t necessarily mean more troops or more barracks. God no. Just more of our taxes on buying ridiculously expensive (but German and French-made) weapons and materials.

    With regard to Greece, 13% of GDP is not unsustainable debt. The only unsustainable debt is when you cannot afford to make the repayments. The problem here is as you point out the bond wolves smelling blood and the Germans thinking that the EU is an export market! There’s the straitjacket of the Euro as well, of course, not to be downplayed, but Greece’s immediate problem is liquidity, and that is being exploited by all and sundry for their own game. And it’s a fucking dangerous game at that.

  4. Small Girl

    May 6, 2010 8:33 am

    I know little about GDPs and military spending but to plagarise Yeats’ swipe at commerce from nearly a hundred years ago, it all looks like ‘fumble in a Greecey till’ to me.

  5. Roger Cole

    May 7, 2010 11:00 am

    Greece clearly spends a higher % of its GDP than Ireland on its military and therefore German and French arms manufacturers as well as German banks are concerned.
    However Ireland has a small military of 10,000 with a €1 billion annual budget allocation, the cost per soldier is one of the highest in Europe caused not by high wages for soldiers but the purchase of expensive weapons to ensure interoperability with NATO and the EU Battle Groups. The cost to Ireland for training with the EU Nordic Battle Group was over half a million euro. Also the cost to Ireland to sustain the US Airforce base in Shannon over the last few years has been nearly €10 million. Ireland should immediately withdraw from the EU Battle Groups and European Defence Agency as indeed should Greece and all the other EU States. In fact one of the consequences of the economic crisis in Greece might not just be a major reduction in military expenditure in Greece but in all the EU states, in particular the withdrawal of all european troops from Afghanistan.

  6. Michael Burke

    May 7, 2010 11:05 am

    Very good point Roger.

    Clearly, the plan is that we shall have gun, but not butter. Our aim, all across Europe shuld be to reverse those priorities.

  7. Pope Epopt

    May 7, 2010 11:08 am

    Thanks for the information on the Irish military and EU obligations. Meanwhile back to Greece…

    Experiences of ordinary Greeks are hard to find unfiltered by media interests. Here’s Talos over at the European Tribune:

    Oh were they angry…

    I haven’t seen anything like it. The Iraq demos were as big maybe, but not as intense. There was palpable outrage in the air. I mean calls for burning the parliament building dominated the demo, chanted not by hard-core black-block anarchists by by pensioners and mothers with baby-carts.

    The situation is unstable. Imagine what happened here in December 08, but on a much larger scale – that is the mood. Perhaps a bit more desperate. Tens of thousands of young people, at the same time, are looking for opportunities to emigrate. Shops are closing at an impressive rate.

    I’m writing a diary about the situation in Greece for about a week now, and I keep postponing it because new developments make previous summaries obsolete. A few hours ago the Greek parliament voted to accept the IMF package and the resulting transfer of sovereignty. But both major parties had leaks. 3 socialist MPs abstained, and one major cadre of the conservative party (a candidate for its presidency a few months ago) voted for the agreement. All were banned from their parties. The far-right supported the socialist government for “patriotic” reasons: for the survival of our homeland.