Greece and the New Colonial Endgame

In essence, the core banks of the EU colonized the peripheral nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the core extracted enormous profits from this expansion of debt and consumption.

Pie Chart

With the bankruptcy of Greece now undeniable, we’ve finally reached the endgame of what I call the “Neocolonial-Financialization Model”.

We all know how old-fashioned colonialism worked. The imperial power takes physical control of previously independent lands and declares its ownership of the region as a newly minted colony.

What’s the benefit of controlling colonies? In the traditional colonial model, there are two primary benefits:

  1. The imperial power (the core) extracts valuable commodities and low-cost labor from its colony (the periphery)
  2. The imperial power sells its own high-margin manufactured goods to the captured-market of its colony.

This buy low, sell high dynamic is the heart of colonialism, which can be understood as one example of the The Core-Periphery Model.

The book Sweetness and Power: The Place of Sugar in Modern History is an excellent history of how this model worked for Great Britain.

The tensions this model generated in the colonial elites of America are brought to life in Tobacco Culture: The Mentality of the Great Tidewater Planters on the Eve of Revolution.

This traditional model of colonialism was forcibly dismantled in the 1940s-1960s. Former colonies established their political independence, a process that diminished the wealth and global reach of former colonial powers.

In response, global financial powers sought financial control rather than political control. This is one dynamic of what I call the “Neocolonial-Financialization Model”, which substitutes the economic power of financialization (debt, leverage and speculation) for the raw power of political conquest and control.

The main strategy of financialization is: extend cheap credit to those with limited access to capital. Those with limited access to capital will swallow the bait of cheap credit whole, and willingly agree to penalties, high interest rates, etc.

Then, when the credit expansion reaches levels that cannot be supported, the lenders demand collateral and/or favorable trade and financial concessions.

These tactics have been well-documented in books such as The Shock Doctrine: The Rise of Disaster Capitalism and Confessions of an Economic Hit Man.

But the economic pillaging of former colonies has limits, and as a consequence the global financial powers developed the Neocolonial Model, which turns these same techniques on one’s home region.

Thus Greece and other capital-poor European nations were recognized as the periphery that could be exploited by the core, and the euro was the ideal tool to financialize the economies of nations which could never have generated credit/housing bubbles without the wide-open spigots of cheap credit flooding their economies.

In Neocolonialism, the forces of financialization are used to indenture the local Elites and populace to the financial core: the peripheral “colonials” borrow money to buy the finished goods manufactured in the core economies, enriching the Imperial Elites with:

  1. the profits made selling goods to the debtors
  2. interest on credit extended to the peripheral colonies to buy the core economies’ goods and “live large”, and
  3. the transactional skim of financializing peripheral assets such as real estate and State debt.

In essence, the core banks of the EU colonized the peripheral nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the core extracted enormous profits from this expansion of debt and consumption.

Now that the financialization scheme of the euro has run its course, the periphery’s neocolonial standing is starkly revealed: the assets and income of the periphery are flowing to the core as interest on the private and sovereign debts that are owed to the core’s central bank and its money-center private banks.

Note how little of the Greek “bailout” actually went to the citizenry of Greece and how much was interest paid to the financial powers.

This is not just the perfection of neocolonialism but of neofeudalism as well. The peripheral nations of the EU are effectively neocolonial debtors of the core, and the taxpayers of the core nations are now feudal serfs whose labor is devoted to making good on any loans to the periphery that go bad.

Neocolonialism benefits both the core’s financial aristocracy, national oligarchies and kleptocracies.

With the bankruptcy of Greece now undeniable, we’ve finally reached the endgame of the Neocolonial-Financialization Model. There are no more markets to exploit with financialization, and the fact that the mountains of debt are unpayable can no longer be masked.

At this point, the financial Aristocracy has an unsolvable dilemma: writing off defaulted debt also writes off assets and income streams, for every debt is somebody else’s asset and income stream.

When all those phantom assets are recognized as worthless, the system implodes.

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commented 2015-07-07 15:38:13 -0400 · Flag
Richard H. commented

I agree that Greece has struck a blow for sanity. Jim’s concept of an economic context was very elucidating to me. Greece does not belong in the EU, and the EU ignored its economic context admitting Greece and some of the southern countries of the EU. As you have pointed out, the blow will be socialized to the taxpayers of Germany, etc. It t is a failed experiment that could have been foreseen.
commented 2015-07-07 15:37:00 -0400 · Flag
Christopher R. commented

Greece struck a huge blow for sanity. Its road will be tortuous still, but the purgatory should end faster than it would have had it sucked the troika pipe one more time. (I only wish the US had had the similar guts in the autumn of 2008).

Now the game-theory really begins. Do the EU apparatchiks have the conviction of their economic myopia and eject greece, and if so, do they try and make greece an example of what happens to dissidents by maximizing the pain in athens (message to madrid/lisbon/rome et al.); or do they pussy out and begin another ‘negotiation’ with greece nominally still in the fold, holding stronger cards?

Either way, the first major rupture in the EU’s solidarity fantasia has occurred officially and the EU’s last days are now being hurtled toward in warp-speed.
commented 2015-07-03 14:58:14 -0400 · Flag
Alexander A. commented

Superb commentary by Christopher and Jim. Jim’s incisive comments on free markets existing within a context – and the consequences of ignoring that context – are especially enlightening in that this is never part of the discussion on markets.
commented 2015-07-03 14:55:58 -0400 · Flag
Jim R. commented

My theory on all this crap is simply this… economies and the free market exist within a context. This context is usually determined by borders of sovereign nations, wherein the context is established, being made up of social, religious, political, educational, psychographical, demographical, judicial, historical and governmental constructs. You could loosely call this culture, but its more than that. Economies can only work within their context and to serve the people in the context. When the globalist fools try to stretch elements of economies such as monetary policy, banking, and certain elements of business across multiple sovereign contexts, it fails because it cuts off vital factors that affect the economy, which are the contextual constructs themselves. If all countries had the same contexts, you could do it, but they don’t (yet).

You can see this in action with offshoring, which results in nothing but effectively labor arbitrage destroying the vital producer/consumer relationship that must exist within the context of a country. Free markets must exist within a context, and if they are going to cross contexts, there must be valves put in place that can be turned to account for the contextual differences to avoid damaging the countries’ economies. China’s context is much different from ours. Germany’s context is different than Greece’s, etc… When contexts are crossed boldly without regard to the constructs, you get chaotic effects, because economies exist within and to serve the people within the context.
commented 2015-07-03 14:49:26 -0400 · Flag
Christopher R. commented

Greece (and several other latin european countries) had no business joining the EU. The theory was cheaper core credit and the bundesbank’s inherent monetary hawkishness would serve as the catalyst to modernize the greek-spanish-portuguese-italian-french economies. Instead, these economies feasted on the cheaper credit, with the resulting obvious sectoral distortions, but did little or none of the modernizing. Now, predictably, they’re all irredeemably structurally bankrupt. And the mandarins of brussels-frankfurt want to pretend that another acronym-freighted credit extension will serve as the macro-elixir.

The italian-spanish-portuguese or in the germans’ corner? Really? Last I heard, there is mass revulsion at the street level for troika-demanded ‘austerity’. All these irredeemably socialist populations are simply displaying their economic illiteracy and confusion: ‘no’ to austerity, ‘yes’ to EU. One doesn’t work without the other at this post-minsky moment, but they pretend otherwise.

And did we forget about the nationalist movements taking center-stage now in most of these countries — podemos, the national front, beppe grillo’s 5-star movement — all of these leading in the polls and all of them have as their founding tenet: OUT OF THE EU.

This is what has put the true scare into the brussels-based dueche-bags. Notice how the EU and its national apparatchiks are doing all they can to frustrate or deny a true up/down vote for these movements. All these players are confused, and there are no innocents: everyone wants the chimera of EU ‘prosperity’, but noone wants to operate fiscally/monetarily in a long-term manner that would improve the chances of the objective.

And how do the nordics currently ‘tackle’ their debt issues?? Are you fucking high, or are you just goofing and we’re all to dour to catch it? The nordics ‘tackle’ the issue with the most comically doomed strategem of all: negative interest rates. The hail mary jihad of all keynesian monetary prayer. When the nero-esque technocrats invoke this last trick, and pretend they can defy the time value of money, you know by definition their ‘money’ is doomed.
commented 2015-07-02 16:50:39 -0400 · Flag
Ben S. commented

And the same has happened with financialization of the US – and when the elite start taking losses, they get their buddies in the government to bail them out and allow them to do it more. They are never fined or charged with wrongdoing or jailed or even lose their jobs. And the elites like Frank, Bernanke and Geithner, after they serve their buddies, then go to work for the bankers at huge salaries. In the process, the middle class, stockholders, and taxpayers take it on the chin.

Corruption reigns and Dems will see to it that the next President has an unblemished record of corruption and will continue to allow the elite to plunder.
commented 2015-07-02 16:42:44 -0400 · Flag
Alexander A. commented

@jc: Have you actually been to the countries you mention? Well, I have and I travel through them on a monthly basis. I talk to the people (in their own language I might add) and if you knew only a percentage of what you think you know you would realize that irresponsible, predatory lending from the “core EU” coupled with short-sighted greed and fecklessness from the “Paisanos” created this Dogshit Cocktail. NO ONE IS INNOCENT. Not the Teutonic bankers crying foul from the front seats of their BMW 7 Series, (and demanding that Das Volk [the Rabble in your vernacular] bail their asses out), and certainly not the leveraged-to-their-eyeballs, deadbeat Greeks.
commented 2015-07-02 16:24:27 -0400 · Flag
JC commented

so what you’re saying is that, the duplicitious Germans (& French, principally) decided to allow the Greeks into the EU in order to bait them & allow Greek corps & sovereign entities to feast on debt at low German rates (rather than the usurious local rates pre-EU) in order to benefit a few financial institutions & then a few yrs later when the Greek mules (as I like to call them) cannot meet their mark, come like vulture carpet baggers to collect? A very interesting point. Wonder why the Baltics, a good deal of the old-Soviet bloc, the Portuguese, the Italian & the Spanish are also in the German-French corner & not w their deadbeat paisanos?
PS: not to mention how the Swedes & Finns have decided to tackle its own debt issues, 180 degrees different than the Greeks, but don’t let reality get in the way of such a cool sounding thesis as:
“Neocolonial-Financialization Model.”
commented 2015-07-02 16:22:06 -0400 · Flag
Ben S. commented

The Greek situation is dire and it is dire because of new colonialism.
commented 2015-07-02 16:21:11 -0400 · Flag
Alexander A. commented

I have been having this exact argument with every German I come across…and they look at me either in horror as they recognize the game being played or with disdain because they think they are the winner and the “financially prudent and productive good guys”…and are totally unaware of the game (and role) they have played and how flimsy their “Good German Economy” mythology truly is…it is a mirage…built on government debt, the “financialization” tactics of their international banks, and the complete socialization of their banks’ crippling deadbeat loans and losses (as opposed to the privatization of their profits, naturally). It is a charade and an impending disaster.
commented 2015-07-02 16:18:42 -0400 · Flag
JC commented

Tsipras has been doing this same shtick since he’s been elected. He voices optimism that a deal can be reached. He says a deal is close because Greece is willing to compromise. But at the critical moment, Tsipras does not compromise.

The negotiations fall apart; Tsipras excoriates EU officials and accuses them of trying to enslave Greece.

Then the process starts over again – as it has been doing for five years. Wash, rinse, repeat, opa!