The Other School of Economics

The Greek double whammy: Lehman-ization + Shock Doctrine

Do different standards apply when rescuing Wall-Street vs. the Greek economy?
A thorough review of the media coverage leaves a sort of unease.

Back in 2008, it was all about saving the system

Lehman did play the role of the sacrificial lamb, but ultimately massive rescue packages saved the banks against promises that things would change: bonuses would be controlled, risk would be managed, greed was not going to be rewarded anymore.

The money makers of the Bull-Market days rivaled in statements of contrition, such as this extract from the Economist special issue on “Progress and its Peril”

“In the rich world the idea of progress has become impoverished. (…) the scope of progress has narrowed. The popular view is that, although technology and GDP advance, morals and society are treading water or, depending on your choice of newspaper, sinking back into decadence and barbarism. (…)
The Economist puts more faith in business than most. Yet even the solidest defenders of capitalism would, by and large, agree that its tendency to form cartels, shuffle off the costs of pollution and collapse under the weight of its own financial inventiveness needs to be constrained by laws designed to channel its energy to the general good.”
- The Economist, Dec 2009

Fast forward to 2010. Can the financiers honestly put their hands on their hearts and swear that all the promises of the past 2 years have not turned out to be empty rhetoric, or tokenistic measures at best?

Your correspondent has been regularly talking to traders and staff from major banks in Asia and America: the guys are laughing. Those who lost their jobs have been re-hired across the street. Bonuses are back where they were post crisis. If anything, it has allowed the banks to do some cost cutting without disclosing it, while bailouts helped maintain the remuneration required to keep paying those who stayed.
A concerted effort has resulted in forgiving the Golden Cow for its poo-poo.

A rather stark contrast with the treatment inflicted to Greece and how the news is reported

Greek citizens see insult added to injury: columnists and commentators somehow feel the need to up the ante on their economic rationalism in order to attest their mastery of the ‘reality principle’ – the stuff that seems to separate the hippies from the business beasts with cojones.
In short, it is all about the shame and guilt that this country should wear for having the audacity and bad taste of getting itself in the mess. Just like Lehman. The difference is that average Greek dudes are no Wall-Street traders and probably wondering why they have drawn the short straw on that one…

I looked very hard and did not find many informed articles in the mainstream media actually properly explaining the magnitude of the sacrifices imposed on the Greek people in exchange of the bailout (110 billion euro – US$145 billion). As if these were mere details not worthy of consideration.
- retirement age moved to 65 (it currently spans from 58 to 61 depending on the job category)
- civil servants to lose 2 months of salary
- social and public budgets are decapitated, etc
A total of 100b euros have been extracted. I understand the concept of sacrifice in times of crisis, but would have liked to see the reaction of the Finance industry if 100b euros had been squeezed out of it in exchange of the bailouts 2 years ago…

Instead, there seems to be no shortage of reports about unions and protesters fomenting chaos. The pearl is probably this lovely piece published by the Australian Financial Review (AFR), sourced from ‘Bloomberg, with AFP’ on how the protests are going to spoil the holiday season in Mykonos…

<< The demonstrations come as the spring tourist season is getting under way. (…) Even before Wednesday’s riots, the Athens-based Association of Greek Tourism Enterprises was planning a public-relations initiative to counter the impact of weeks of strikes and protests. Its first target: Germany, where public resentment has been rising against the government’s contribution to the bail-out package.(…) The negative headlines could be an initial deterrent for travellers concerned about safety, said Drew Patterson, the chief executive officer of Jetsetter, a private luxury discount agency based in New York. “Consumers do read things in the press and they do respond,” Mr Patterson said. “When things blow up, when there’s negative news in the press, that will slow down the booking pace.”>>

So while this is a valid point (Tourism accounts for 16% of Greece’s GDP and is an important part of the economy bringing much needed cash), there could probably be a fairer and more subtle way of reporting it. Maybe by explaining that after spoiling the Aegean beaches for the last decades and enjoying the free booze on the islands, Europeans could help when Greece needs them?

Coda – the Shock Doctrine at work?

Naomi Klein described the Shock Doctrine, by which neoliberal reforms and advances could be rolled-out under the urgency of a crisis. The theory is that people being so stunned would accept the financial sacrifices required to put the country back on track.
The trouble with Greece is that the people don’t see it that way. They make it quite loud and clear given the protests of the past weeks. Because it is western Europe, and not Latin America or Asia where brute military force can keep protesters at bay, they cannot be repressed easily.

So how to to push the reforms if not with bullets? By using psychology: guilt to be precise.
Greece is guilty of not been able to manage its finances properly; guilty of generating a debt that future-generations-will-have-to-repay; guilty of spoiling the party of the financial European Union.

So in fine, we see that Greece has to take the bullet for the lost dream. Like in an old classic drama, it has been assigned the role of scapegoat. It will have to expiate for the failure of the European Market dogma.

What happened to the positive rhetoric used when promoting the European construction: it was going to create a ring of solidarity between countries?

A variation of the Shock Doctrine might also come out of those events. Like viruses, those things mutate fast.

Indeed it represents a significant window of opportunity for neo-liberal European policy makers: A very convenient precedent is about to be created. Imagine the political argument: “surely French workers should be able to accept working 3 more years before being able to retire: look at the sacrifice that their Greek counterparts have accepted…”

{ leLaissezfaire }

Also acknowledging French blogger @Vogelsong who posted two excellent and pugnacious pieces titled “la mondialisation” (Globalisation), in which he covered the Shock Doctrine theme. He really triggered the initial idea for this post. I have elaborated around some of his arguments to open them to an English speaking audience, and added the part about the Lehman-ization process.