As we write these lines the Papandreou government is staggering towards collapse. In a matter of days the whole situation has been thrown into turmoil.

Only last week, eurozone leaders were congratulating each other on agreeing a €100bn loan to Athens and a 50% write-off of its mountain of debt. Governments cheered. Stock exchanges rose on the announcement of the deal. And politicians breathed a sigh of relief. A few days later and everything turned into its opposite. The Greek deal was rapidly unravelling. Markets were tumbling. Governments were cursing. And politicians were predicting imminent disaster for the euro.

One week ago President Sarkozy had thought he would be presenting to the world a done deal for the Eurozone rescue and asking the Chinese for a big injection of cash. Instead, Papandreou’s move left both him and German Chancellor Angela Merkel shocked and appalled. The summit of the G-20 leaders was thrown into confusion before it even opened.

What has happened to produce such a violent transformation? The immediate cause was the announcement by George Papandreou of his intention to put the issue to a referendum. In return for their “kindness” the European leaders reiterated their demands that Greece must make deep cuts in public spending, slashing pensions and wages and making thousands of civil servants redundant.

The announcement of a referendum fell like a bombshell in Paris and Bonn. Merkel and Sarkozy were beside themselves with rage. The French President appeared, white faced, to make a blistering public attack on the Greeks. Papandreou, having agreed to accept the latest European “rescue” plan (that is, a plan to rescue the bankers and capitalists at the expense of the Greek people), suddenly announced his intention to put the plan to a referendum.

The announcement provoked an immediate crisis that spread far beyond the frontiers of Greece. The response of the markets was immediate. They began to fall sharply immediately after Papandreou’s announcement of a referendum, with banking shares falling fastest. A banker said: “The Greek decision to call a referendum has scuppered the chances to price this bond. I think it has been an exceptionally difficult week. These are very unusual circumstances.”

The markets remained volatile on Wednesday with the European Central Bank forced to intervene and buy Italian bonds. The ECB bought an estimated €1bn to €2bn of Italian bonds by midday in London. Italian 10-year bond yields are only just below 6.5 per cent – levels considered unsustainable by markets.

This nervousness of the markets cannot be explained merely by the prospect of a referendum in Greece. Already last week there were voices raised expressing scepticism about the latest deal. Christof Roche, a spokesman for a Luxembourg-based fund, said: “The deal has been put on hold due to market uncertainty and volatility.” One investor said: “This is a fund that is supposed to have the fire-power of €1 trillion, yet it can’t even raise €3bn. That is very worrying.”

The markets clearly believe that this is the start of the final meltdown of the euro. Greece will default on its debt and Italy will follow. Even France may be dragged down in the general chaos. And the future of Europe will be in question.


Why did he do it?

The calling of a referendum had all the hallmarks of a desperate gamble on Papandreou’s part. Why did he do it? It is likely that Papandreou has chosen the referendum option to save his own skin through a “clever” manoeuvre.

Surrounded by the EU wolves, Papandreou said “Amen” to everything, signed anything that was put in front of him, shook hands and smiled uneasily. But when he returned to Athens he found a very different atmosphere – an atmosphere thick with tear gas, rage and indignation. The people of Greece are fed up with of austerity and of having decisions about Greece’s future taken by unelected officials from the EU and the IMF.

There is deep resentment that unelected officials from abroad now seem to be running the country. The Greeks are a proud people, and firm supporters of democracy. They are deeply offended by the spectacle of unelected EU officials being sent to Athens to administer the “reforms” (i.e. cuts). One Greek newspaper published a photo of the members of the EU “task force” (even the language is that of a military occupation), with the caption: “the occupation force arrives”.

The PASOK government has tried to push through draconic cuts in state spending in order to satisfy international lenders. This has now pushed the PASOK into crisis and threatens to bring down the government itself. Feeling the fire under his backside, Papandreou jumped. But he jumped out of the frying pan and straight into the fire that is consuming him.

The consciousness of the workers is more and more revolutionary. Last Friday the Greek people celebrated the anniversary of their struggle against Italian fascism in 1940. In many areas people went to the rallies only to protest against the ministers. Two PASOK ministers were expelled from one of these rallies in Thessaloniki as a crowd of ordinary people shouted “traitors” and “thieves”.

Papandreou wanted to turn the whole thing into a referendum on whether they want to stay inside the eurozone, arguing that a No vote will lead to default, bankruptcy and chaos. The referendum would, in effect, be a plebiscite on Greece’s membership of the euro. Since the polls suggest that 70% of Greeks want to keep the euro, he was gambling that the majority of the Greek people would vote YES.

He was probably calculating that a referendum would place the opposition in a dilemma. If they voted No they would be seen to be risking Greece’s place in the eurozone. If he won the referendum, he could claim the credit for getting the Greek people to agree “democratically” to swallow the bitter medicine prescribed by the doctors in Brussels and Berlin. If he failed, he could say that he was overthrown because he wanted to let the Greeks choose. But he was being too clever by half.

Apart from his own personal position, the real reason for the referendum was that Papandreou’s hand was forced by an increasingly rebellious mood in the country. On Friday of last week, on an important national day marking Greece’s wartime resistance to the Axis powers, the president was heckled and called a traitor. There were angry demonstrations denouncing the deal. According to one poll, 60% of the Greek people are opposed to the deal.

Papandreou’s gamble was based on the assumption that the referendum would get the backing of the people. That was supposing a lot, and Merkel and Sarkozi certainly did not share this supposition. Neither did the markets, which immediately started their downward slide. Sarkozy and Merkel were determined to fully implement the decisions of last week’s EU summit. They insisted publicly that the eurozone plan for Greece is not up for renegotiation.

The French and German governments said they wanted “full implementation” of the agreement “in the quickest time-frame”. Germany has made this abundantly clear.”[What] we just agreed last week cannot be placed back on the table,” Foreign Minister Guido Westerwelle said. In a joint statement, President Sarkozy and Chancellor Merkel said the decisions taken by last week’s EU summit were “more necessary than ever”.


The dictatorship of Capital

Papandreou has become a convenient scapegoat for the present mess. But he is not the main culprit. Greece has been plunged into a deep crisis by the attempts of French President Nicholas Sarkozy and German Chancellor Angela Merkel to impose their will on the Greek people, using the most blatant blackmail.

Whatever one thinks of the proposal for a national referendum on the new “bailout” plan, it is evident that the people of Greece have an unalienable democratic right to decide what policies are acceptable to it. The idea that a vicious austerity plan can be foisted on Greece by a clique of bureaucrats from Paris and Berlin is a monstrous imposition. But this is what the self-styled European democrats are insisting on.

Marx pointed out that in a boom, credit is easily obtained. In the mad carnival of money-making everyone is anxious to borrow and to loan. It seems the party will never end, but end it always does. Then the mood changes into its opposite. In place of the cheerful open-handedness, there is the grasping meanness of the miser. Credit dries up. Debts are called in. Now everyone wants hard cash. This is true not only for private individuals and companies but for whole nations.

In Shakespeare’s play The Merchant of Venice, Shylock insists on his right to cut a pound of flesh from the living body of a man who cannot pay his debts. Now the international Shylocks are demanding the right to carve their pound of flesh from the living body of a whole nation. They are wielding the knife that threatens to sever the lifeline that is keeping Greece alive.

If they are not paid what is due they will refuse to hand over any money to Athens. The logic is simple from a capitalist point of view. You cannot pay what you owe me? That is just too bad! I demand what is mine. You are unemployed and have lost your income? That is no concern of mine. Pay up! You have no money to feed your family? Sell your furniture and all your belongings! But pay me what you owe! The same song has been sung by the usurer and the loan-shark throughout history.

The elected heads of France and Germany are reduced to the role of the bailiffs whose job it is to collect unpaid loans and who visit the houses of poor men and women to extract money with menaces and, if necessary, with physical methods of persuasion. The only difference is that here violence is being used, not against an individual family but against an entire nation.

The dictators of the EU frozen the sixth aid tranche of 8 billion euros unless Greeks voted YES to the austerity plan in the proposed referendum. One might well ask what the point of holding a referendum is if the result is going to be decided in advance in Brussels. As a matter of fact, one might ask what is the point of electing a government at all, if its every action is determined by a gang of unelected EU bureaucrats and bankers.

Papandreou attempted to recover some credibility by draping himself in the flag of democracy: “We will not implement any programme by force,” he said, “but only with the consent of the Greek people.” This is our democratic tradition and we demand that it is also respected abroad.” But high-sounding speeches about democracy cut no ice in Brussels.

Sarkozy replied with brutal frankness:  “giving people a voice is always legitimate but the solidarity of all eurozone countries is not possible unless each one agrees to measures deemed necessary”. In other words, the interests of the eurozone (that is to say, the eurozone bankers and capitalists) must take precedence over democracy. Thereafter events moved swiftly.

Shortly after midnight on Wednesday Merkel and Sarkozy announced their conditions for a Greek referendum, while the elected head of the Greek government was kept waiting to make his own statement, like a tradesman is made to wait in the kitchen in the house of a rich man. Papandreou was invited to a friendly chat with his French and German counterparts, who placed a pistol on the table before treating him to what police interrogators describe as the “third degree”. They informed the Greeks that if a referendum was going to take place it had to be on December 4th and that the question should be “YES or NO to the euro” and not on the loan-agreement as proposed by Papandreou.

These actions amounted to writing the epitaph to Greece’s national sovereignty. The smiling mask of “democracy” has finally fallen away to reveal the ugly reality: the EU is merely a convenient facade that conceals the dictatorship of the banks and big monopolies.

Political developments in Athens now reached boiling point. No sooner had Finance Minister Evangelos Venizelos set foot on Greek soil than he announced his firm opposition to the referendum. Venizelos wants to separate himself completely from Papandreou, who everyone can see is finished. George Papandreou has served the interests of the European bankers and capitalists very well, but he committed an unforgivable crime: he failed to fall on his sword when ordered to do so.

There is no gratitude in politics, and in the end Papandreou got no thanks from his masters in Paris and Berlin. Their harsh judgement was: “The Moor has done his duty. The Moor may go!” Their man then became Venizelos, a more reliable stooge than Papandreou. When Brussels crack the whip, Venizelos jumps to attention. He does not ask awkward questions. He does what he is told. Moreover, Venizelos is a man with connections.

It is no accident that immediately, one after the other, ruling party PASOK deputies and government ministers started openly saying NO to referendum, some even declaring that they would not give the government a confidence vote on Friday. Yet only 24 hours earlier the whole cabinet had unanimously backed Papandreou’s call for a referendum. What is happening in Athens?

It is clear that the real rulers of Greece are Sarkozy and Merkel. They pull the strings and the bourgeois elements in the government dance. The PASOK government has loyally carried out the dictates of the Greek and European bankers and capitalists. They have faithfully carried out the cuts that Brussels demanded. But they paid a heavy price. The electoral base of PASOK has been whittled away until it is now barely more than 15% in the latest opinion polls. The people are angry and much of their anger is directed towards the PASOK and the government.

The attitude of the bourgeoisie towards a Social Democratic government or Labour is always the same: use and discredit. They graciously allow the Social Democrats to come to power at a time of crisis in order that they should carry out the necessary cuts in living standards. They squeeze the “socialists” like a lemon. Then, when they are discredited, they are thrown to one side like a dirty dish rag and the government is returned to its rightful owner: the right wing parties.

From a bourgeois point of view, the “socialist” government was no longer fit for purpose. It had become a weak government – too weak to carry out the deep cuts in living standards that are demanded by Greece’s creditors. The bourgeois is preparing to ditch the PASOK and hand power to the right wing parties. But there is a small difficulty. The right wing is not much stronger than the PASOK.

Some PASOK MPs were demanding the immediate formation of a “national unity government”. They put pressure on Papandreou to resign as Prime Minister. Venizelos is at the head of this gang, but he is not alone. Five Ministers (Venizelos, Chryssochoidis, Skandalidis, Reppas, Othonas) opposed the referendum. The Papandreou government was already dead last night. All that remains is to give it a decent burial.

Papandreou’s options are extremely limited. If he insisted on the referendum, PASOK would have broken apart. Early Elections would have to be held under the shadow of national bankruptcy. He has played for time, abandoning the referendum in order to secure the October 26th loan agreement. But there may still be a vote of confidence tomorrow [on Friday], which he can only win on the basis of a deal with New Democracy. Samaras has now agreed to back the loan agreement, setting the basis for early elections and perhaps a short-lived national unity government.

Papandreou will now ask the opposition parties to vote for the loan-agreement. This would enable the EU to release the aid tranche, after which any new interim government that may follow would call new elections. Some of the Greek media claimed that Venizelos’ rebellion, which effectively killed the referendum idea, had been discussed with German Finance Minister Wolfgang Schauble. This seems highly likely, as Venizelos will do nothing without consulting his bosses.

Should Papandreou resign, this would not necessarily mean early elections. The President of the Republic can invite the political leaders one by one and give them a mandate to form the new government. In fact, manoeuvres and intrigues to form some sort of national unity government have been going on for some time.

Hitherto (that is, until today), the New Democracy had insisted that under no circumstances would they join a national government. But a couple of phone calls from Berlin have been enough to convince them of the error of their ways. Now the “nationalist” Samaras is singing a different song. Therefore a national government of PASOK-ND is now on the cards.


A government of crisis

The idea that a national unity government would provide Greece with a degree of stability is a foolish illusion. It would be a government of crisis from the very beginning and in all probability would not last long. The main victim would be the PASOK, which would see its vote collapse. Under these conditions, the PASOK could not hold together. It would enter into crisis and split.

The widespread disgust with the PASOK should lead to an increase in support for the KKE and Synaspismos. The problem for the bourgeoisie is that the other main party in parliament, ND is not strong enough to govern alone. The opinion polls put its support at just 30%.

In order to get a comfortable majority it would have to form a coalition with LAOS, the extreme right wing party of Karatzaferis. LAOS now has 6.7% but according to the opinion polls it may get as much as 9%. Together with the ND’s 30%, this could add up to 39%, which, although it is far from being a solid majority, might give them something like 168 MPs in parliament. This is because of a change in the electoral system.


Political turmoil in Greece

In the middle of all this economic and political turmoil came the unexpected and intriguing news that Defence Minister Panos Beglitis had decided to replace the leadership of the Greek Armed Forces, a move that has left many questions unanswered. The replacement of the Chief of General Staff, and the Chiefs of Navy, Air Force and Land Forces was swiftly condemned by all the opposition parties, who demanded explanations for this “undemocratic” action. The conservative Nea Dimokratia (ND) says it will not accept the replacement and will call back the four Army Chiefs when ND comes to power.

According to reports in the Greek media, Beglitis convened an unscheduled meeting of the Government Council for Foreign Affairs and Defence, half an hour after PM George Papandreou called for an extraordinary cabinet meeting. Beglitis apparently told the old military leadership:

“Thank you for your cooperation, but I think it’s time for your replacement. I wanted to do so since last August but due to the problems with Turkey I couldn’t. Now I feel it’s the right time for your replacement.”

With these enigmatic words, the four Army chiefs – Ioannis Yangos (General Staff), Fragkoulis Fragkos (Land Forces), Vasilis Klokoza (Air Force) and Dimitris Eleysiniotis (Navy) – were sent into retirement. They were replaced by Michalis Kostarakos (Chief of General Staff/Defence), Konstantinos Zazias, (Land Forces),  Kosmas Christidis (Navy)  and Antonis Tsantirakis (Air Force).

The meaning of these moves is not known, but it seems that there was some friction between the Defence Minister and the Army Chiefs. Some sources claim that Beglitis was angry at the way the Armed Forces dealt with the Parade in Thessaloniki on October 28th, when some Armed Forces groups insisted on parading although the President had already gone and the parade was officially cancelled.

Other incidents that angered Beglitis were the occupation by retired officers of the Defence Ministry last month and the fact that the Army had also raised objections to allowing soldiers to collect refuse during the municipal workers’ strike.

Is it possible that these actions were in response to the threat of an army coup? That there are sections in the upper echelons of the army (not only in Greece) who would not be averse to an adventure is very likely. But the memories of the brutal military junta of 1967-1974 are burned on the consciousness of the people. Any attempt to move in that direction would spell civil war, which the ruling class would not be confident of winning. Far from solving the problems of Greek capitalism, it would make things a thousand times worse, and would be extremely dangerous from the point of view of the capitalist class.

It is possible that the move was due to normal causes. The term of the old army leadership was due to finish in March 2012. That was certainly the opinion of The Financial Times yesterday.

Some commentators have pointed out that the Greek government has much more to fear from ex-officers protesting against cuts in pensions than plans for a 1967-style junta. Beglitis’ decision has caused profound discontent within the Armed Forces, who have also seen cuts in their salaries and pensions as a result of the austerity measures.


Implications for the EU

The Greek crisis shows how the bourgeois have lost control of the situation. Merkel and Sarkozy talk about plans and strategies but in reality all are dependent on what happens in Greece, Italy and Spain and on the latest convulsive spasms of the international markets.

The implications of the Greek crisis for Europe and the world economy are very serious. Months ago President Obama warned that the prospects for a recovery of the US economy were dependent on a solution of the Greek problem. World Bank President Robert Zoellick recently stated that if a Greek referendum failed, “it would be a mess”. If Greece is ejected from the eurozone, all hell will break loose. It would cause waves that would spread through Europe and all around the world.

They talk about a “partial and controlled default”, but it is in the context of an uncontrolled situation. It is moreover fraudulent because it is not even clear that the banks have agreed to accept a loss of 50%. This so-called haircut signifies a reduction of the debt by 100 billion euros. But Greece will have to give nearly 30 billion to the Greek banks to help them absorb this cut, and also nearly 13 billion euros to the Greek pension institutions. So the real “benefit” will be 60 to 70 billion euros. But the debt is still 360 billion euros.

All that the so called rescue plans for Greece has achieved is to push the country into a deep recession. This year its GDP has fallen by -7% and next year it will fall by more than 3 %. This is the most optimistic variant. Rising unemployment and falling living standards will depress demand still further, leading to less economic activity, falling tax revenues and an even higher deficit. How Greece is supposed to pay its debts in such circumstances is a mystery compared to which squaring the circle is child’s play.

If Greece defaults, the crisis would send shockwaves across Europe that could engulf other weak eurozone countries such as Italy and Spain. But matters will not stop there. There is increasing speculation that France itself is facing a downgrade because of the exposure of its banks to Greece. This would signify the emergence of a yawning abyss between the North and South, threatening to cause a split and the breakup of the eurozone, and even the EU itself. This in turn could usher in another global downturn. This is a catastrophic scenario for world capitalism.

The idea, popular in some left circles (such as the KKE), that Greece can solve its problems by going back to the Drachma is foolish and short-sighted in the extreme. The Drachma would immediately plummet, leading to hyper-inflation as in Germany in 1923. There would be a run on the banks, causing a collapse of the Greek banking system, and a massive flight of capital from Greece. The resulting slump would be far worse than the one the country has experienced in the last 18 months.

The idea that a devaluation of the Drachma would boost Greece’s exports to boom is also wrong. It presupposes that the other EU countries would be prepared to stand with their arms folded while their markets were invaded by cheap Greek goods. However, it is obvious that a departure from the euro zone would only be a preparation for the ejection of Greece from the EU itself. Outside the trading block, Greece would not find life very easy. It would be subject to protectionist measures of all sorts. Inside or outside the EU there is no future for Greece on a capitalist basis.


Class struggle

In the best case scenario it is only a partial and temporary delay in the crisis. They are simply buying some time. The real problem is that Greece cannot pay. One cannot squeeze blood from a stone. In the end, all the sacrifices of the Greek people will be in vain. Even on the most optimistic expectations, that the present plan is successfully implemented, it will only mean that Greece’s deficit will still stand at 120% of GDP by 2020. That means that Greece will still be faced with the prospect of years and even decades of harsh austerity and falling living standards. It is a finished recipe for the class struggle.

Already the situation in Greece is dire, conditions are worsening every day, schools are in crisis, hospitals are without drugs; people are returning to the villages to find food; the Athens metro only has one train every half an hour. Wages and pensions in the public sector have fallen by almost half (48%), in the private sector, by 60-65%. Yesterday the NGO Medecins Sans Frontiers appealed for food relief for Greek families. They said 30,000 families need help. For the first time in decades students have learning problems because they go to school hungry.

The austerity measures imposed on Greek by the Eurozone leaders include the following:

  • Further cuts in public sector wages and many bonuses scrapped
  • Some 30,000 public sector workers suspended, wages cut to 60% and face lay off after a year
  • Wage bargaining suspended
  • Monthly pensions above 1,000 euros to be cut 20% above that threshold
  • Other cuts in pensions and lump -sum retirement pay
  • New pay and promotion system covering all 700,000 civil servants

Measures like these will not solve the Greek crisis. They will continue to make it worse, plunging Greece into an even deeper slump. Even if the measures were pushed through, the Greek people would resist and there are many ways in which resistance can take place.

The Greek working class has shown tremendous militancy in fighting against the attempts to place the entire burden on the shoulders of the Greek people. Mass street protests and general strikes have been escalating to the point that they threaten to destabilise the entire old order of society. In recent days they have even heckled the Greek president, branding him a traitor. The mood is angry, even toxic.

The Greek workers are fighting to defeat the plans of big business to take away everything that they have won through struggle over the past decades. The unions are preparing for a new wave of strikes. Michalis Yagouris, the president of the union of employees in the metropolitan public transport said recently: “We do not want a new government or a referendum. We want a change in politics”.

“We want to know what will happen to our jobs, to our wage levels and the companies we are working in,” said the transport trade unionist. He said that the measures taken so far did not imply real recovery of transport companies. About 1,200 people of about 9,000 employees in the underground, the electric train, buses, trolleys and trams were fired last year. With the introduction of the labour reserves, their number will increase. “If they have a plan how the companies will be managed with fewer people at lower salaries, let them tell us,” said the trade unionist, adding, “but to only cut staff without a plan how to manage transport is not a solution.”

The class struggle does not move in a straight line. Periods of tremendous exertion are followed by temporary lulls. But what is extraordinary about Greece is the enormous determination and resilience of the workers. After the 48 hour general strike, workers in many places remained on strike, especially in the public sector. Some workers in the public sector occupied key points of the state, such as the Ministry of Internal Affairs. The bourgeoisie is terrified and there are daily appeals to the government to stop the occupations.

The Greek workers have shown their willingness to fight but the union leaders are not proposing anything concrete for the continuation of the struggle. What would be required now is a clear lead from the trade union and Left leaders: step up the mass action and build a united front of Left parties with a programme based on the expropriation of the bankers and capitalists as the only solution. Such a programme would serve to mobilise the working class for a workers’ government, the only government that can sweep away corrupt and degenerate Greek capitalism.

In the present conditions, there will be further attacks on living standards. But this will serve to enrage the workers, leading to further desperate movements. Under these conditions, an insurrectionary uprising against a right-wing government cannot be excluded at a certain stage.

The main thing is the impossibility of solving the problems of Greece on the basis of capitalism. The best the EU has to offer is a partial cancellation of Greek debt. The banks will have to “sacrifice” 50% of their loot, although in practice the bill will be paid by the European taxpayers. But the remaining 50% must be wrung from the blood, sweat and tears of the Greek people. This is a finished recipe for further convulsions.

In the coming period, there will be titanic class battles, but also periods of lull, defeats and violent swings of public opinion to the right and left. That is in the nature of things. But given the extreme nature of the crisis, and the inability of the bourgeoisie to re-establish anything resembling stability, each lull will only be a preparation for new and even more extreme upheavals.

Some wealthy Greeks are already voting with their feet. Anticipating a disaster, the Greek bourgeois are leaving the country. Paul Mason, the economics editor of the BBC’s Newsnight says: “Anecdotal evidence suggests that the Greek elite is buying up property in London just as fast as they can find berths in Poole for their yachts. They are voting with their spinnakers, on the basis that the game is up. In any future Greece on offer they will have to start paying taxes and they do not want to.”

The bourgeois can only think in the short term. They live from day to day, improvising so-called plans that solve nothing. They seek to avoid a crisis here and now by passing measures that are piling up new problems for tomorrow. This is what passes for “realistic politics” nowadays. In fact, it is not realism but only the blind leading the blind towards an abyss.

The bourgeoisie is terrified of the prospect of further economic collapse and the social upheaval that would entail. But they can do nothing to prevent one thing or the other. Whatever they do now will be wrong and the Greek working class has not yet said its last word. Once they are armed with a consistent socialist programme with an international perspective, there is no force on earth capable of stopping them.

London, 3rd November