News Release

Failed State: Greece or European Union?


JAMES HENRY, jamesshelburnehenry at, @submergingmkt
Henry is former chief economist at the international consultancy firm McKinsey & Co. He is now senior fellow at the Columbia University Center for Sustainable International Investment.

He said today: “Several noted economists — including Joseph Stiglitz and Paul Krugman — have said that what the EU is doing to Greece makes no sense from an economic point of view. And they’re right, it doesn’t from an economic point of view — but it may from a political point of view.

“This has been absurdly consumptive and could have been avoided with less than $20 billion, far less than the Detroit bailout. Germany has all but said it seeks the ouster of Greek Prime Minister Alexis Tsipras, who didn’t create this mess. He’s even now agreeing to a 23 percent VAT [sales] tax.

“Consider that while they are putting the screws on the left-wing government in Greece, much of the U.S. and European establishment is working to help the right-wing government in Ukraine as it seeks to restructure its $125 billion in debt and its economy is falling apart. No moralizing there.

“This is a punitive policy and it’s about making an example of Greece. Clearly, part of the dynamics is that the EU is worried about the rise of the left in Spain and other countries. Meanwhile, Le Pen’s party in France and other right-wing parties are celebrating all of this.

“To get out of the situation, Greek prime minister Alexis Tsipras has said he’d like to more effectively tax the rich and he asked for help from the Swiss in finding an approximate $100 billion in taxes from foreign tax havens. But the Swiss have refused to release information on rich Greek tax cheats.” Henry is also senior adviser with the Tax Justice Network and was lead author of the report “The Price of Offshore Revisited,” [PDF] which estimated that total wealth in tax havens worldwide was between $21 trillion and $32 trillion.

He continued: “The suffering in Greece is palpable; the people are petrified. There’s 25 percent total unemployment and 60 percent youth unemployment. It’s been a bigger drop than in the U.S. during the Great Depression, now they can’t get money out of their ATMs. And the EU is effectively blocking Greece from stimulating its economy back to health.

“The Greek debt is an unserviceable debt. It didn’t get invested in useful assets. Much of the debt was actually accrued after Greece adopted the Euro — which itself was done under dubious circumstances — with German and French banks lending money to the Greek government for weapons. Then, when the financial crisis — which wasn’t Greece’s fault — hit, these private banks got paid off and institutions like the IMF assumed much of Greece’s debt. Those institutions are harder to deal with than private creditors.

“Now, the EU, rather than deal with this like a bankruptcy situation and taking a haircut on the debts, is preaching more and more austerity — which has failed miserably. The EU is the real failed state here. They’re effectively putting Greece in debtors prison. There needs to be a bankruptcy court to deal with sovereign debt.

“Part of the problem is the dynamics of the EU, especially with these Nordic countries with relatively affluent populations and a Calvinist attitude. [John Maynard] Keynes wrote in 1921 about why German war debts should be forgiven. Ironically, it’s been Germany that’s historically been one of the great beneficiaries of debt forgiveness — and now they’re screaming at Greece to pay up.”