Greek default, European bankruptcy

Note kindly translated by Anne-Marie de Grazia

The probability of Greece defaulting on its sovereign debt appears now higher than ever. During these past two weeks this has been evoked explicitly for the first time by the Greek leaders, signalling a change in the official discourse of the government.

An imminent default?

In fact, if one has a look at the coming repayments Greece has to make, it becomes clear that without an agreement with the Eurogroup countries, a default will become inevitable.

Chart 1

List of repayments to be made by Greece until the end of 2015

A - Dette Gr

The Greek Prime Minister, Mr Alexis Tsipras, has repeatedly declared that between payments due for salaries and pensions and the repayment of interests or capital on the debt, the government would chose the first, not the second [1]. He recently recalled, before of an assembly of executives of his SYRIZA party, the fact that his government had already furnished colossal efforts but that there was no way that he would cross the « red lines » which had been traced at the beginning of negotiations, last Frebruary. As for the Minister of Finances, the charismatic Yannis Varoufakis, he reiterated the same things, adding that he has been taping the negotiations which took place during these past few days at the European summit in Riga [2]. One can easily understand this apparent hardening of the discourse, provided that one enters into a logic of negotiation. The Greek government has explicitly tied its hands with these famous “red lines,” which is tantamount to either using «coercive deficiency » has we already have had the occasion to point out [3], or then it resembles the attitude of Odysseus having himself tied to the mast of his boat so that he could hear the sirens, whereas his crew’s ears were plugged with wax[4].

But if the Greek government states that progress is being made in the negotiations, it seems that on the German side, a very different vision of things is prevailing. Concretely, the position of the Greek government is as follows: “we have done the maximum; it is your (the Europeans’) turn to do your share of the job, or we’ll end up in default.” It seems indeed that we have already gone beyond the stage of “playing,” and that one is now trying to designate who will be carrying the blame for the default. For it must be understood at this point that, if technically a default will not automatically bring about an exit from the Eurozone, in reality, politically, it will come accompanied by a suspension in the mechanism of liquidities supply to the Greek banks (ELA). Under these conditions, the Greek government will have no other choice than to put in place a parallel currency, which will rapidly become the Drachma. In the real world, a default will probably provoke very quickly an exit from out of the euro.


Is default inevitable?

We must understand that this question of a possible, and presently probable, default of Greece is only important because a large share of the Greek debt is held by the ECB and the various European funds, be they the FESF or the MES. From a total of 315.5 billion euros of debt, 141.8 billion are held by the FESF, 52.9 billion are in the bilateral loans with countries of the Eurozone, 27 billion are held by the European Central Bank and 25 billion by the IMF.

A default would obligate countries which have contributed to these funds to supply them with money in the amount of the repudiated debts. In agitating the question of the default, the Greek government is signifying to its partners of the Eurogroup, who are presently its adversaries, that it will be they, not the Greek people, who will suffer the consequences of inconsequence.

For, in this matter, there is a grave inconsequence on the part of the Eurozone countries. When it became clear that the Greek debt was getting close to a Ponzi scheme, in 2010, these countries should have accepted that Greece default on part of its debt. But they turned this down for two reasons.

The first was – and remains – a question of principle. The Eurozone, by its true name the Economic and Monetary Union, foresees every country being responsible, and being the sole responsible, for its public finances. One could then think that this responsibility would have as a consequence that one lets an indebted country default. But this solution was forbidden in the name of saving the Euro. Nicolas Sarkozy and Angela Merkel agreed to consider that it was impossible to tolerate a default in the Eurozone. This is where we find the first inconsequence; one puts together a monetary Union and a single currency, while in the same time refusing to the member countries both the resources of federalism, and the possibility of a default. This inconsequence is primordial.

But there is a second reason. In fact, the European leaders were petrified by the fact that the German and French banks were deeply engaged in the Greek debt. If they have refused the possibility of a default, it was essentially in order to avoid a banking crisis which would have revealed the negligence in the management and in the supervision of these banks. Here we have a second inconsequence.

In refusing a default, the governments of the Eurozone have set afoot a complex system of refinancing of Greece, the effects of which onto the country’s economy have revealed themselves to be catastrophic. In fact, Greece was asked to carry an ever increasing amount of debt while its economy was contracting.


Chart 2

A - Gr1Gréce

This third inconsequence has provoked the social crisis of utmost gravity which Greece is undergoing now, and which brought SYRIZA to power. Under these conditions, the choice proposed by Tsipras and Varufakis, that either the Geek debt be annulled in part, and in part restructured on the model of what had been consented to Germany in 1953, or that otherwise there will be a default of Greece, was a clear one. Here again, and this is the fourth inconsequence, the countries of the Eurozone did not want a “German type” solution on the model of the 1953 agreement with Greece. They will most probably be faced with a default.


A Greek default or a European default ?

A default is not the end of the world. But this default will inevitably have important economic as well as political consequences. It will mark the collapse of a large part of the European Union policies, both as regards its methods and its goals. It could bring about the beginning of the end for the euro.

Concerning the methods employed, the negotiations with Greece have been lead against any good sense or, more exactly, against any democratic good sense (which we are forced to agree is not quite the same thing). There have been attempts to discredit, to threaten, even to corrupt the Greek negotiators. These negotiations are actually being held in the greatest of obscurity. We do not have at disposal the minutes of the declarations of the participants, and one leaves it over to the press the produce « leaks » the content of which is uncontrollable, precisely because of the lack of minutes. Yannis Varoufakis has expressed this quite well on his blog, admitting that he taped the negotiations so that one day we will know what to make out of the behavior of all parties involved. « And maybe that we should question the European institutions, where decisions of fundamental importance are being taken, in the name of the European citizens, but minutes of which are neither taken down nor published. Secrecy and a credulous press are not good harbingers for European democracy.»[5].

Considering that Varoufakis is in reality a defender of the European project, one must understand, and measure the amplitude and the reach of his criticism. In effect, it is European democracy, not so much as a principle (already badly harmed since the 2005 refusal to take into account the referendums in France and in the Netherlands) but as a system of operational rules, with the purpose of ensuring the responsibility of actors for their acts, which is absent today. We know quite well that without responsibility there is democracy no longer. What Varoufakis is saying, is that the European Union is no longer, in its day to day functioning, a democratic system.

But the failure also concerns the aims of the European Union. In the case of Greece, one pretends officially wanting to keep the country in the Eurozone. But, in fact, and for various reasons, one can see a preference emerging for an austerity which sweeps everything away wherever it passes. Greece’s position has received the support of many economists and even the IMF has considered that on a number of points, the Greek government was right. But, nothing doing. It is all happening as if the German government, it must be said with the help of the French government which is behaving – alas – in this instance as the most eager of vassal, as the lowest of lackeys, were seeking to impose at any price upon ALL the countries of the Eurozone the death-bringing austerity which is its policy. And one can understand that concessions to Greece would immediately entail demands emanating from Spain. In this latter country, Podemos, the party coming out of the movement of the indignés has carried away on this Sunday, May 24, a few beautiful victories which are rendering the position of the Spanish Prime Minister, Rajoy, ever more fragile. But this is true also of Portugal and Italy. Concessions to Greece would signal the beginning of a wholesale putting into question of austerity, something the German government doesn’t want to happen under any pretext. For ideological reasons, but also for some very material ones.


The bankruptcy of the European Union.

What is profiling itself on the horizon is not a Greek default, or more exactly, not only a Greek default. We are witnessing the bankruptcy of the Europeist ideology, and of the European Union as well. Through the Greek default, we will be witnessing a defaulting of the politics of the European Union, taken hostage by Germany. So that this default will be a European default, as it will signal the end of a certain idea of the European Union and will open a deep and durable crisis within Europe. European institutions will be affected in their legitimacy. This default will be the basis of the coming revolution.


[1] Tugwell P., « Tsipras Says He Won’t Cross Red Lines in Talks With Creditors », Bloomberg International, 15 May 2015,

[2] Varoufakis Y., « The Truth about Riga », posted on Mai 24, 2015 on his blog,

[3] Sapir J., « Greece’s brinkmanship », note published on Russeurope, on February 4th, 2015,

[4] Elster J., Ulysses and the Sirens – Studies in Rationality and Irrationality, Cambridge University Press, Cambridge, 1985.



Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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