Doom merchants predict social catastrophe for Greece. But when Argentina defaulted in 2001, the people – not the banks – rallied to the rescue.

Backdropped by Britain's National Gallery in central London, protesters hold placards during a rally to show solidarity with Greece, Sunday, Feb. 15, 2015. Hundreds of protesters gathered in support of the new government and the anti-austerity movement in Greece. Greece's new left-wing government is pressing for a short-term "bridge" agreement with eurozone lenders and a longer-term debt relief deal later this year. (AP Photo/Lefteris Pitarakis)

Backdropped by Britain’s National Gallery in central London, protesters hold placards during a rally to show solidarity with Greece, Sunday, Feb. 15, 2015. Hundreds of protesters gathered in support of the new government and the anti-austerity movement in Greece. Greece’s new left-wing government is pressing for a short-term “bridge” agreement with eurozone lenders and a longer-term debt relief deal later this year. (AP Photo/Lefteris Pitarakis)

On 5th July 2015 the curtains will draw on the final act of this modern Greek tragedy. Greece’s citizens will vote in a referendum on whether to accept the Troika’s bailout terms which have been described as “humiliating”  by Prime Minister Alexis Tsipras. If default is not already declared today when a 1.6 billion debt repayment is due to the IMF, then it will follow soon after. Yet as analysts frantically contest whether the economic consequences of such an outcome will lead to disaster or salvation for the country, the potential for its citizens to come together and engage in actions to cope collectively during the aftermath has been conspicuously absent from the debate.

What is certain is that the Greek people should not fear default. Not only do they know that things cannot get much worse having already endured five years of punitive austerity, decimated livelihoods and economic depression but in addition, given that over 90 percent of IMF, EU and European Central bank bailout funds are allocated to banks rather than to social programmes for the people who actually need them, they also have little to lose by voting “no”. More crucially, they can take inspiration from the people of Argentina who, in the wake of their country’s 2001 US$ 93bn debt default (the largest in international history at the time) demonstrated extraordinary unity in supporting each other through the tough times in the year that followed. Subsequently abandoning its national currency’s dollar-peg under the Convertibility model and then devaluation (the equivalent of Greece leaving the Euro), it went on to become the fastest-growing economy in the Western hemisphere, enjoying average growth of 9 percent between 2003-07.

Life after debt (default) in Argentina

While the economic case for why default worked in Argentina and should also be replicated by Greece is well known, less understood is how creatively its citizens responded following the 2001 default when faced not only with social meltdown but also personal hardship, redundancy, confiscation of their life-savings, loss of their businesses or homes and often pauperisation for the first time in their lives. It was the collective and solidarity actions that millions engaged in that cushioned their fall and which in the Greek case will surely also soften the catastrophic social impact anticipated by many.

For an entire year during 2002, Argentina became an incubator for radical experiments in self-organisation, participatory democracy and the solidarity economy. Neighbourhood assemblies sprang up in the country’s urban centres, in which ‘ordinary citizens’ debated the political problems of the day and democratically allocated scarce resources to meet community needs; millions joined barter clubs to produce and receive essential goods and services when the banks ran out of money; workers came together to occupy abandoned factory plants, hotels and hospitals to re-establish production; and unemployed workers (piqueteros) marched in the streets alongside the struggling middle class who furiously banged their saucepans in protest under the slogan “piquetero and pot-banger, our struggle is the same!”

The echo of solidarity that reverberated through society demanded not only an alternative to the IMF-imposed neoliberal austerity that Argentineans had suffered for a decade, but acted out the kind of communalistic world they wanted to see in practice.

So how can such spontaneous and remarkable societal responses be explained? Well, whilst emergency situations of course have a paralysing effect on some, for many more they expand individuals’ capacities to utilise their imagination to seek collective solutions to overcome adversity. A communal adrenaline rush or entering “the zone” en masse, if you will. In reducing citizens to atomised individual agents, economists have conveniently forgotten that when facing hardship, we humans don’t passively accept our fate but rather, as social beings, we establish bonds with others to resolve it.

As Argentinean historian and popular assembly participant Dr Ezequiel Adamovsky explains, “times of crisis like the one we confronted after the 2001 default radically transform people. They imbue us with an energy to get involved in collective actions with others, regardless of social background, which we wouldn’t normally contemplate”.

Why the impact on Greeks will not be as bad as they say

While a post-default shock that involves executing emergency monetary policies and possible Euro exit will precipitate a period during which the Greek people experience considerable pain, deeper impoverishment and acute anxiety about their futures, the detrimental impact upon households and livelihoods has been grossly exaggerated by analysts who do not appreciate the innate human capacity to pull together and care for one another when times get tough.

In fact, civil society groups, charities and social movements have alreadyestablished a thriving solidarity movement. Across the country, rather than idly observing their compatriots’ misery, ordinary citizens are voluntarily operating community job centres, food banks, health clinics and legal aid hubs to replace the welfare services that austerity has decimated. In a society where 18 percent do not have enough to eat, a third have no health insurance and thousands face foreclosure and eviction from their homes, this throws out a lifeline. Since the Syriza government’s election the strain on these civil society-led initiatives has eased with the introduction of its social programmes that ensure no family is left without water or electricity. Kinship ties, financial or in-kind support from family members and friends, and increased remittances received from the estimated 11 million Greeks living abroad will act as further buffers to hardship in the post-default milieu.

Following the Argentinean example, thousands more are also involved inGreece’s barter network, in which those without sufficient Euros due to loss of work or financial hardship exchange basics like clothes and food or services such as English lessons, massages or haircuts by using the TEM credits system. On Sunday the ECB announced that it would refuse to further capitalise the Greek banks which means that they will literally run out of money very soon. In a post-default scenario a desperate population will resort to joining barter clubs on a massive scale, as 2.5 million Argentineans did in 2002 when liquidity ran dry. These would act as another safety valve against neoliberalism’s devastating consequences.

According to Jorge Rabey, coordinator of a barter club in the Argentinean city of Santa Fe in 2002, “in my city alone, the clubs were used by 4,000 families. Ultimately barter acted as a barrier to poverty and as a form of containment. Santa Fe enjoyed lower levels of violence and social problems during the crisis as the community came together to ensure that basic needs were satisfied.” He adds that “the corporate media and ruling elites were favourable to us in the early days because they were well aware that barter was helping the system to save itself and preserve social order.”

Aside from acting as a financial safety blanket, participation in the clubs and other collective activities also helped a traumatised society with emotional comfort as social interaction with those who shared their misfortune provided solace. Often they also provided sites of social integration, which broke down preconceived prejudices of “the other” as pauperised middle-class citizens met and interacted with shantytown dwellers and the long-term unemployed for the first time.

For others, participation in barter helped to regain their shattered self-esteem following job loss and offered long-term benefits that helped society to eventually flourish once economic normality was restored. For example, many developed business acumen that they later used when establishing microenterprises. Maria Mazzoni, a researcher at Argentina’s National Comahue University explains that participation in other post-default social movements “empowered many citizens by cultivating a greater understanding of their civic rights.” She cites the case of one woman who left her husband after many years of suffering domestic violence after gaining the confidence to do so from her involvement in a squatters’ movement. Meanwhile Adamovsky reflects on how the shared experience of collective resistance to the default “helped citizens to learn the power of engaging in political demand-making, whether it be concerned neighbours protesting to local authorities over electricity blackouts or children, who joined a more politicised post-default generation and regularly occupy their school buildings to demand improvements to the decrepit state of their classroom.”

The alternative ending to the Greek tragedy

The alarmists who predict that Greece will descend into civil war following this week’s turbulence are wrong. If there is an outbreak of social unrest after the default, it will certainly not be due to indignation caused by shared material grievances. Indeed, for several reasons the Greeks are relatively much better positioned to withstand the financial and psychological impact of a default than the Argentineans were in 2001.

First of all, one of the principal reasons many in Argentina’s middle class were left destitute by the default in December 2001 was due to the government infamously enacting the Corralito which froze savers’ bank accounts in order to prevent a run on the banks. The move confiscated dollar deposits entirely and severely limited weekly peso withdrawals, but was implemented so suddenly that it left thousands not only irate enough to amass at their nearest high street branch to smash bank windows, but also deprived them of an important safety net against impoverishment. Greek businesses and citizens on the other hand have had five years to contemplate this eventuality. Between September 2009 and May 2015 almost half of the €238bn deposited in national banks had been withdrawn, with savers flocking to ATMs in recent days to make sure that their euro deposits were either transferred into overseas accounts or taken out and safely hidden under their mattress before the Greek banks were forced to close their doors today and similar limitations on cash withdrawals were enforced in what has turned into their own Corralito. In other words, unlike the Argentineans, the majority of Greeks have been able to preserve their savings as a safety measure against pauperization.  

 Secondly, drawing upon a historical analysis of empirical data from multiple countries across two centuries, J-curve theorists assert that social explosions or revolutions are more likely when periods of prolonged economic prosperity, raised hopes and social advancement are supplanted by a period of sharp reversal. However, this has not been the case in Greece. The economic picture has been bleak for several years and even Syriza supporters realise that their country will not return to prosperity for a generation. With optimism contained and many resigned about their country’s short-term gloom, if Greece enters default, their ire will more likely be directed against the IMF or Germany than the government, even more so now that the decision has been delegated to the Greek electorate in the referendum.

In contrast, many Argentineans experienced significant improvements in their living standards throughout the 1990s due to both a decade of almost uninterrupted growth and the fact that the artificially high value of the peso under Convertibility meant that they enjoyed an orgy of consumerism, importing cheap TVs, cars, mobile phones and taking foreign holidays. Both President Carlos Menem and the media propagated the idea that Argentina had fulfilled its historic destiny of having reached the First World, so when this myth of national grandeur and personal enrichment abruptly came crashing down around them during the 2001 crisis, Argentineans rushed to the barricades to demand the removal of their government.

The psychological blow of rapid social descent for seven million well-educated middle-class Argentineans who became poor in the year following the default also compounded their material losses. In Greece on the other hand, the fall from grace – whilst a bitter experience – has been one that is relatively less abrupt.

As Juan, an 80 year-old from Buenos Aires put it, “as humans we feel content when singing along to a melody and can anticipate the next few chords. It’s when the tune suddenly changes that you have a problem.”

Thirdly, NGOs, religious associations, informal social solidarity groups and loose networks providing social assistance to vulnerable sectors have been developing their infrastructure and fortifying their capacity to respond to Greece’s humanitarian crisis over a number of years since the first bailout in 2010. Aided by an influx of volunteers they are now well placed to respond in the event of increased privation that default may engender. In comparison, the magnitude and abruptness of Argentina’s 2001 collapse overwhelmed many aid agencies, which were simply unable to respond adequately at the time.

Fourthly, and crucially, Greek society stands the best chance of emerging from the default positively if social bonds are preserved between the poorest sectors, organised labour and the struggling middle class. Such an alliance was the bedrock of Argentina’s self-organised solidarity movement of 2002 and also crystallised the political resistance to neoliberal hegemony that successfully heralded an alternative political-economic model under the Nestor Kirchner administration, which stimulated an impressive macroeconomic recovery. Since the middle of the noughties though, this prevailing class alignment has ruptured. Poisoned by an anti-poor discourse that has returned to permeate the political and cultural fields and, popularised by the corporate media, has generated inflated preoccupations with crime and “insecurity” in the middle class, as well as an irrational fear of “the other”.

However, the Greek people have a greater chance to transcend such social fissures for two reasons. On the one hand, because in Argentina the scapegoating of the poor mestizo and the proliferation of symbolic violence against them is regrettably a manifestation of the re-emergence of deep-seated social polarisations that emanate from diametrically-opposed visions for its national project. The ‘popular, pro-poor, worker-orientated Peronism’ sharply conflicts with the ‘anti-popular, white, European-looking, middle-class anti-Peronism,’ and is a social cleavage that simply does not exist in Greek society. Certainly there is a potent anti-immigrant current which has been exploited by Golden Dawn, but such a threat has rescinded for now.

On the other, what contributes to the disassociation between middle and lower sectors in Argentina is the simultaneous existence of a number of diverse productive models that permit few spaces for shared class interests to be identified between them. According to sociologist Maristella Svampa these include 1) the re-industrialisation and services model; supported by elements of the organised working class and middle sectors; 2) the Agro model, whose complex social base is composed of the landowning rural elites, major economic interest groups, socially conservative sections of the middle class and small producers; 3) the ‘Dispossession’ model in the northern provinces that involves the displacement of indigenous people; and 4) the mining-export model that operates in many parts of the country but is entirely absent in others. The latter consists of different classes, but is yet to carry significant weight in the economy. Conversely in Greece, the structure of the economy is much more homogenous and largely based around the tourist and petroleum industries. With common interests more identifiable, society is less likely to fragment and turn in on itself, as has been the case in Argentina more recently.

Finally, for all its faults and internal divisions, through its early welfare policies and refusal to accept the Troika’s bailout demands to further slash public sector wages and pensions or add VAT to utility bills and medicines, in left-leaning Syriza, the Greeks can take comfort in the fact that they now have a government that has demonstrated its genuine commitment to social movement demands and the class interests of workers and vulnerable sectors in Greek society. It will surely do all it can to ease their pain in the aftermath of a default. This stands in stark contrast to the post-default Eduardo Duhalde government in Argentina (2002-03) which, aside from establishing an unemployment benefits plan (Jefes) to co-opt sections of the piquetero movement and dilute solidarity with the struggling middle class, instead appeared to govern in favour of big business. Duhalde presided over the massacre of an unemployed workers’ roadblock at Pueyrredon Bridge in Buenos Aires in June 2002, did nothing to prevent attempted police evictions of worker-occupied factories, continually demonised autonomous social movements that refused to support his government and also betrayed savers by enacting the corralón, where dollar deposits were returned to them in pesos at a quarter of their value.

One example of how Greek workers could benefit from Syriza’s support in the wake of a default in ways that eluded their Argentinean counterparts until the arrival of the Néstor Kirchner government in 2003 is if it sparks mass bankruptcies of firms. Faced with losing their jobs and often owed many months’ pay in a climate of mass unemployment and economic chaos, thousands of workers in hundreds of workplaces in Argentina “recovered” the companies that their owners had abandoned and began to run them as democratically-run worker-cooperatives during 2001-02. In doing so, equal wages were usually applied and surplus was redistributed either in the form of jobs, increased remuneration or for social ends, rather than as profit for a capitalist owner. If the Greek government’s post-default industrial policy provides sufficient support to workers to instil in them the confidence to ignite a similar movement beyond existing examples like the Vio.Me worker-recovered building materials factory in Thessaloniki, then workers’ self-management could become a widespread phenomenon. It could also contribute to the country’s macroeconomic goals of job creation, reduced social inequality and productive output, as it did in Argentina. The potential for the movement to become the cornerstone of a bottom-up, non-capitalist transformative solidarity economy in Greece is enormous, and could provide a phoenix from the flames of default.

Putting Greece’s unsustainable debt to bed – The illegitimacy question

As a final reflection, it is worth pointing out that resilience from beleaguered citizens alone is all very well, but in order for Greece to prosper once again, it must free itself from what is almost universally accepted to be its chains of unsustainable debt, which currently stands at 175 percent of GDP. However, whilst default will temporarily remove the debt-monkey from its back, in future years the Greek government will eventually need to restructure the value of its bonds with its old creditors if it wants to return to the international credit markets.

Argentina’s government successfully negotiated debt write-downs in 2005 and 2010, which shaved almost two-thirds off the value of its debt, although its public debt has since soared. Once externally-held private debt, provincial debts, payments owed to the Paris Club, liabilities to creditors as the result of International Centre for Settlement of Investment Dispute rulings, outstanding debts to the vulture funds following unfavourable US court judgements, and growth-indexed bond dividends owed are factored in, the debt stands at over US$ 300 billion. This is even greater than it was at the time of the 2001 default in real terms, using the Ministry of Economy’s own figures. The danger is that this pattern could be repeated in Greece. But there is one way to ensure that it doesn’t and which can also guarantee that the government is able to uphold its economic sovereignty whilst shedding financial dependence on the IMF, ECB and Europe’s strongest nations.

You may have noticed that despite the wall-to-wall coverage of Greece’s debt crisis, the question of its legitimacy is rarely mentioned. However, if one dissects the history of its debt, it becomes clear that its dubious origins need to be investigated and then, the proportion of debt deemed to be odious, illegitimate or illegally obtained (including that which has been subsequently recycled in the form of more recent loans) should then repudiated by the Greek government. Let’s examine the character of Greece’s debt in a little more detail.

Firstly, we see that during WWII, an occupation loan of 400 million Marks that Greece was forced to provide to Hitler to finance his military operations grossly expanded the nation’s debt. Notably, the reparations which were partially paid by Germany to Greece after the war never included this loan, and thus it remains part of Greece’s debt origins which have since been recycled countless times.

Then there is the debt contracted by Greece’s military dictatorship, which quadrupled between 1967 and 1974. This was not only accrued unconstitutionally but was also used to suppress the Greek people. An estimated 3,500 people were detained in torture centres run by the military police. This obviously qualifies it as odious debt.

More recently, the colossal debt incurred for the organisation of the Olympic Games in 2004 was partly accrued due to alleged bribes made by multinationals so as to obtain procurement contracts. For instance, Siemens allegedly bribed officials to win a contract from Hellenic Telecom, and for a new security system for the Athens Olympics. In 2011 a Greek parliamentary committee claimed that the total damage to the economy from Siemens’ fraudulent practices amounted to €2bn.

In addition, in April 2015 the Hellenic Parliament established the Truth Committee on Public Debt and ordered that the creation and growth of public debt, the manner and reasons for which debt was incurred, and the impact that the conditionalities attached to the loans have had on the economy and the population be investigated. Just two weeks ago the Committee released its findings and ruled that not only does Greece not have the ability to pay this debt, but that it should also not pay due to its illegal, illegitimate and odious nature. The key finding was that debt emerging from the Troika’s arrangements since 2010 represent a direct infringement on the fundamental human rights of the residents of Greece.

In this endeavour, Greece is one step ahead of Argentina, whose recently created debt audit commission is currently investigating the origin of the country’s debt, dating back to the military dictatorship of 1976 to 1983.

In closing we must ask if the proposal to conduct public debt audits to investigate debt legitimacy is realistic. Well, in the economies where they have been performed, not only do they survive non-payment of the proportion of their debt that is determined to be illegitimate, but they boast thriving economies today. For instance in 2008, Ecuador’s debt audit Commission found 70 percent of Ecuador’s debt to be illegitimate, and through partially defaulting and selectively buying back bonds, the country’s debt burden was slashed by $7bn. Today Ecuador is one of region’s fastest-growing economies.

However, it is not just nations in the global south that either possess illegitimate debts or have sought to audit them. The Norwegian government has conducted an audit into debts owed to it, and cancelled those that arose from loans for exports for purposes which were known to be unethical at the time they were made. Meanwhile, Iceland held a referendum in which its people voted to refuse to take on their banks’ foreign debts, the result of which was ratified by a European court in 2013. The country has since benefitted enormously, with its economy booming and unemployment down to 2 percent. Even in France, a citizens’ audit conducted by civil society groups found 60 percent of its public debt to be illegitimate.

What is now urgently needed is a European conference to agree debt cancellation for Greece and other countries that need it, informed by such debt audits and funded by recovering money from the banks and financial speculators who were the real beneficiaries of bailouts. Failing that, if Greece can now be bold enough to implement its Truth Committee’s findings and refuse to pay many of the debts it will have to renegotiate one day, it will not mean financial armageddon, just as this week’s default will not. What such a move would do though, is restore Greece’s financial independence.

In a few days, Greek voters will have the opportunity to exhibit some of their Argentinean counterparts’ tenacity and resilience in the midst of a crisis by rejecting the Troika’s humiliating bailout terms. If, in the words of Kipling, they can keep their heads when all about them are losing theirs and can trust themselves when others doubt them, then they will gain the opportunity to create a brighter future for themselves, and a society that can be re-founded on the principles of solidarity and hope.

– Originally published by Open Democracy and republished under a Creative Commons license

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Daniel Ozarow

Daniel Ozarow is a Lecturer at Middlesex University and Deputy Head of its Latin American Studies Research Group. He is also Coordinator of the Argentina Research Network and co-editor of Argentina Since the 2001 Crisis: Recovering the Past, Reclaiming the Future (Palgrave Macmillan, 2014).

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