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Lehman shockwaves still shaking EU economic framework 10 years on

A ferry arrives at the Chinese-owned port of Piraeus, which is used by many tourists to the numerous islands on the Aegean Sea, on Sept. 6, 2018, in Piraeus, just southwest of Athens, Greece. (Mainichi)

PIRAEUS, Greece -- Tourists carrying suitcases flow out of a large ferry that has just arrived at a pier here at Greece's largest port, just 12 kilometers southwest of the capital Athens. The heat has continued into September, and the place is alive with visitors from the many Aegean Sea cruise ships that stop here. Meanwhile, in the port management area, the company flag of the Chinese operator waves in the breeze.

The port was handed over to China COSCO Shipping Corp., a major Chinese government-run firm, in 2016. In 2009, after the tsunami of bad credit washed over Europe following the September 2008 collapse of Lehman Brothers Holdings Inc., it was discovered that the Greek government had engaged in epic levels of irresponsible spending. The capital streaming into the country, which had swelled with expectations of economic growth after Greece joined the euro in 2001, reversed flow. Government bonds crashed, and fundraising in capital markets ground to a halt. Part of the bailout agreement between Greece and the European Union called for the selloff of government properties, and so the Port of Piraeus came under Chinese ownership.

"Shipping rates kept falling, and my monthly income was nearly cut in half," recalled a 52-year-old truck driver. Chinese laborers flooded in, displacing many of the original Greek employees. Chinese navy ships even began to dock in Piraeus.

The "Lehman Shock" upset the very order of the world economy. One of the changes was the rise of China as a top player. Coming away from the 2008 financial crisis with relatively light wounds, China reached out to the European Union to bring it into its economic sphere with the creation of its "One Belt One Road" trade initiative. This policy has seen the continued "binge buying" of shipping ports, airports and power stations in Italy, Portugal and other European countries that lost value in the financial crisis. Berlin-based think tank Mercator Institute for China Studies warned in a February 2018 report that China's influence over Europe has already spread to the level of political decision-making.

In Greece, there is still little pushback against China, which has made considerable investments in the country. In fact, it is quite the opposite, as dissatisfaction with the EU grows over Europe's continued strict monitoring of the country even after the bailout program officially ended on Aug. 20 this year. In a July 2015 national referendum, 61 percent of citizens voted against the acceptance the EU bailout package and its austerity requirements. One 34-year-old woman who voted against the bailout said angrily that Greece should dump the euro if it remains impossible to have hopes and dreams for the future, and asked why the government was ignoring the will of the people.

The anger over the austerity policies is driven by the belief that the EU's tariff- and barrier-free common market is beneficial to countries with strong economic output such as Germany, but exploits southern European countries. In this "winner-takes-all" economic environment, dissatisfaction with Germany has been growing in the EU's southern reaches as Berlin is reluctant to extend financial support. In June this year, an EU-skeptical party joined Italy's ruling coalition.

Even in Germany, there has been opposition to sending so much money to support southern European countries as well as to the influx of refugees, leading to growth in support for an anti-EU party and deepening national divides. The 2008 financial crisis and its aftereffects have exposed inconsistencies in the EU -- "humanity's greatest experiment" -- and shaken its framework to the core.

In the United States, ground zero for the financial collapse, existing values were shaken as well. While working class people lost jobs and homes en masse, financial institutions were bailed out using government funds, causing a public outcry. This anger against the "establishment" helped birth the administration of President Donald Trump.

International Monetary Fund Managing Director Christine Lagarde sounded the alarm in a blog post marking 10 years since the Lehman Shock, writing, "The global financial crisis remains one of the defining events of our time. It will forever mark the generation that lived through it." She continued, "The fallout from the crisis -- the heavy economic costs borne by ordinary people combined with the anger at seeing banks bailed out and bankers enjoying impunity, at a time when real wages continued to stagnate -- is among the key factors in explaining the backlash against globalization, particularly in advanced economies, and the erosion of trust in government and other institutions."


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