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Finance vs democracy in Greece

The Greek crisis has exposed the undemocratic nature of the European institutions, writes Fanny Malinen – but it also reveals a much broader problem

July 21, 2015
6 min read

mario-draghiEuropean Central Bank president Mario Draghi: part of the ‘revolving door’ between central banks and finance firms

For the last six months, Greece has been the battleground for the future of the Eurozone. Some, presenting the Greek government as a dangerous force, say it has been the battleground for the entire European project. But Alexis Tsipras is not a radical. He simply sees what even the IMF admits by now: Greece can never pay its debt, and austerity is destroying the economy. He is a democratically elected prime minister trying to do the best for his country.

And that, it seems, is exactly the problem.

The European Union is not concerned with democracy. In fact – as is becoming increasingly clear – it has from its onset been a neoliberal project, primarily concerned with the interests of capital, and neoliberalism itself is incompatible with democracy.

This has been made especially clear as more scrutiny falls on the rules of the monetary union. The Maastricht criteria laid out strict rules regarding countries’ deficit and their public debt to GDP ratio. These rules have since been tightened with the Stability and Growth Pact, all based on the false narrative that countries’ budgets are run like household budgets and one should not not ‘live beyond one’s means’.

Ideological rules

The rules the Eurozone has set itself are based on neoclassical economics, a political ideology that asserts the market is a natural state of affairs that emerges when you ‘roll back’ the public sector. This theory is masked in rhetoric about individual freedoms and the self-interest of humans trying to maximise our utility in a world of scarcity.

What this narrative hides is that neoliberalism would not be able to function without the state and its institutions. Perhaps the most obvious way this manifests itself is the role of state violence in securing the implementation of neoliberal reform. This was true in Chile 1973, when the Chicago school first started experimenting with its free market ideas. It is true in austerity Britain today – and it has been true in Greece since the first bailout in 2010. Resistance to privatisation plans and cuts has been met by varying degrees of police surveillance and violence.

But there are also more subtle ways that state institutions are used in the interests of the rich and powerful. The 2008 financial crisis saw states push themselves into huge debt in order to protect the profits of the financial sector by bailing out the banks. To protect finance’s interests, it is vital for them to have state institutions that are willing to take the side of the financial markets, even when that hurts ordinary people.

Central bank independence is one of the key tenets of neoliberalism: the lender of last resort should be free from ‘political influence’. But it is peculiar that only closeness to the state is considered a problem, while the revolving door to the financial sector is not. For example the European Central Bank (ECB) is run by Mario Draghi, who was previously managing director of Goldman Sachs, the very investment bank that helped Greece’s former governments fiddle statistics to be let into the Eurozone.

Central banks in this framework are only concerned with the level of inflation, not employment. This is one of those many in-built assumptions that sound neutral but are not. Inflation erodes purchasing power, but it also erodes debts. It does not hurt ordinary people as much as the wealthy whose assets would decline in value. As so often, when we are told something is apolitical, it is not.

The ECB is the ultimate dream of neoliberals. It is so ‘independent’ that it does not even have a state. But the ECB is clearly a political institution. Nowhere was this clearer than in the decision not to extend the Emergency Liquidity Assistance to Greek banks in the run-up to the referendum. The message was clear: you can vote however you want, but the real power lies with us because we control your monetary system. You choose, but if you choose wrong, we cut off your money supply. This speaks volumes of how meaningless democracy is in the face of financialised capitalism.

Power and accountability

These power structures go largely unquestioned, despite being the building blocks of our current system. Just think of the deregulated financial markets. But money is not a commodity like any other, as it has the power to buy all other commodities, which means that financial markets can never be stripped of the relationships of ultimate dependency and power. Customary and moral assumptions enter the game: for instance, that debts have to be repaid.

Or take the way the Eurozone is run. The group of finance ministers (the Eurogroup) has the ultimate power. As Yanis Varoufakis described to the New Statesman, the Eurogroup knows very well that it can do whatever it wants with that power. It cannot be held accountable because there is no legal framework.

This is why the Greek referendum was so significant, even if it has been brushed under the carpet as a No was turned into a Yes. It made visible the undemocratic nature of the European institutions.

In a similar way, a debt audit – which is also underway in Greece – makes visible the disciplinary power of the financial markets. By examining contracts to see how debts were accrued in the first place, it is possible to see the unequal relations that have led to the accumulation of the debt and are constantly reinforced by its payment. That is the first step towards breaking the creditors’ power.

It is no wonder then that much of European mainstream media panicked when Greece did not pay the IMF loans that were due in June but called a referendum instead. The sentiment of it being the end of Europe as we know it echoed across the continent. It could have been a historic moment, but Tsipras did not capture it.

It is still not too late. By exposing the grossly undemocratic nature of the neoliberal EU, Greece has taught us a lesson not just about the EU but about the finance-driven capitalist system we live in. There is no room for democracy or national sovereignty. There is no capitalism with a human face.

Let us hope this is not only the end of the European project as we know it, then. Let us work towards it being the end of the neoliberal project. The tools to challenge the power of finance exist: the debt audit and a default. And it is vital to also construct alternatives. They are there, too: in the growing solidarity movement that provides food, medicine and other essentials through self-organised, non-hierarchical networks throughout Greece.


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