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Greece poses an obvious question, says Terry Moore: why are those responsible for the financial crisis making the most vulnerable pay for it?

Just a few weeks after inflicting a heavy defeat on the right-wing government, Greek socialists are now staring into a political and economic abyss. How has it come to this? Why is it now that Greece is shown to be bankrupt, with burgeoning deficits and clarion calls from international organisations for the country to make savage cuts in its public expenditure?

How did credit rating agencies in the United States, such as Moody’s, Fitch and Standard & Poor, gain the power to undermine sovereign governments simply by downgrading their ratings of those governments’ bonds? Why is anyone incapable of standing up to the credit rating agencies and challenging their hold over financial centres in New York, London and Tokyo?

And why are socialist governments the primary victims of the current negative speculation in international bond markets, which is accounting for vast sums in extra credit costs? This largesse should be used to alleviate the economic crisis in countries such as Greece.

One perverse consequence of the current situation is that those same credit rating agencies are themselves undergoing a crisis of confidence. There has been severe criticism of their failure to spot the private sector problems that led to the global financial meltdown. And they are suffering from falling revenues and rising compliance costs. Yet these arbiters of international money markets are brazenly undermining the public finances of a number of countries and risking a double-dip recession in Europe.

Over the past 20 years, the credit rating agencies have had an incestuous relationship with many dubious individuals and companies and employed dubious methods to maximise revenue. For example, Moody’s has been caught out negatively rating a German reinsurance firm simply because that company didn’t see why it should pay Moody’s seven-figure fees when it was already paying two other credit rating agencies for the same service.

These credit ratings agencies continued to give sub-prime mortgage aggregation vehicles a triple-A rating even as the US property market collapsed in 2007. The demise of multi-billion dollar businesses Enron and WorldCom took place completely under their radar. At one point, they even rated Japan as a bigger risk than Botswana.

Is it just a coincidence that Spain and Portugal are the latest targets of the ratings agencies and currency speculators, as the economies and public expenditure levels of those countries are under attack in the international currency markets?

The common threads that link Greece, Spain and Portugal are that they are members of the eurozone and run by socialist parties which defeated the centre-right in general elections.  While the centre-right has won power in France, Germany, Italy, Poland, Sweden and most of the EU’s new member states, in Spain, Portugal and Greece (and Britain, some might add), socialist administrations have bucked the trend. Is that why these countries are in the speculators’ sights?

Meanwhile, the centre-right government in Ireland escapes their criticism, despite having the worst public finances in the eurozone. Under its centre-right coalition government, Italy has a public sector debt at a level of

114 per cent of  gross domestic product. Greece’s equivalent debt is 112 per cent, Spain’ s is 56 per cent and Portugal’s  77 per cent. America’s s budget deficit for 2010 is 11.2 per cent of GDP. So why are centre-left-led governments suffering so much more at the hands of international capital?

As far as Greece is concerned, the blame lies with the centre-right government which was responsible for deceiving international supervision. While there has long been suspicion of the methodologies utilised by Greek economic statisticians, the national statistics produced under Greece’s conservatives were as genuine as a British MP’s expenses claim.

A budget deficit of 12.7 per cent of GDP is clearly unsustainable – as are state pensions at a level of 96 per cent of pre-retirement earnings, especially with an ageing population. So there has to be a day of reckoning in Greece and it appears that the public sector will pay a heavy price. Not all of this is undeserved. The Greek public sector has become bloated, with most appointments and promotions dependent on affiliations to whichever party happens to be in power. Further, there is a long history of tax evasion in Greece.

However, freezing the wages of public servants is not the answer. For a recovery programme to work, the state needs starts to maximise its revenues after years of tax dodging. It is perverse for to hold down the pay of those who are crucial to the recovery – the tax collectors.

For many years, Greece has endured the adverse consequences of dynastic politics. The Papandreou family has controlled the leadership of the centre-left through the Pasok party. The right-wing New Democracy movement has been the plaything of the Karamanlis family. All this has to change.

However, the unlikely saviour of socialist principles in Greece may be the country’s membership of the euro. This is also shoring up the defences of Spain and Portugal in the face of avaricious currency speculators. Ultimately, the European Union and the European Central Bank will not let eurozone members be picked off one by one.

German insistence on a no-bailout clause for all eurozone members means there will be no direct transfer of direct funds between, say, Germany or France and Greece. However, its membership of the EU means that Greece should get the financial support it needs to ensure its economy does not implode completely.

Greece will have to swallow a bitter pill and undertake a fundamental and long-overdue reform of its public sector. But its membership of the EU should shield it from the worst consequences of the seedy activities of financial carpetbaggers in the dark recesses of the global financial marketplace.

It may be that, because of its shortcomings, Greece should not have been allowed to join the eurozone in the first place. But now the eurozone can protect the country from the worst excesses of the free-market ideologues who would have prevailed if Greece still had the drachma and was forced to go cap in hand to the International Monetary Fund.

It is an unavoidable conclusion that the role of credit rating agencies in assessing national debt should be the subject of investigation by the EU and the US Securities Exchange Commission. There is a great deal of evidence that they are abusing their positions and are motivated only by their own bottom line at the expense of public welfare.