Oct 29, 2011 Letters
The main thought on the minds of the financial markets as well as a lot of politicians in Europe is that Greece has only itself to blame for the trouble it is in. After entering monetary union by rigging the statistics, it is argued, Greece went on a huge “spending binge”, making public finances unsustainable. This is now even threatening to undermine the financial stability of European monetary union as such.
The more “moderate” version of this sort of thinking suggests that Greece should take its medicine and drastically cut all government expenditure and all wages (in both public and the private sectors). The less “moderate” version simply says that Greece should never have been allowed to join the monetary union in the first place and should now be thrown out of it.
Undoubtedly, Greece does have some “demons” that it needs to tackle, such as the functioning of its statistical office and the transparency of public sector pay. However, the sort of thinking now being developed in Europe is overly simplistic and is a recipe for disaster, not only for Greece but also for workers throughout Europe. Let us examine some of the inconsistencies and contradictions surrounding the case of Greece.
The financial markets’ on Greece have not come out of the blue. After all, if Greece is under attack because of this deficit running at 12 per cent of GDP, there are others with a comparably high deficit, such as the United Kingdom or United States. And even if the Greek deficit has doubled over the past years, almost all other countries in Europe have done the same to prevent a new Great Depression, so why Greece and why right now?
The answer is that, since the beginning of November 2009, central bankers and finance ministers have been spreading negative rumours, with the European Central Bank (ECB) no longer providing liquidity in return for Greek government bonds and the finance ministers of the Euro Group writing a letter which was leaked to the press, urging emergency consolidation measures.
This “megaphone diplomacy” focused the financial markets’ attention on Greece. In return, central bankers and finance ministers gained a powerful ally (including the same Wall Street agencies that previously gave AAA ratings to “toxic assets”) in pushing through their policy agenda: enormous pressure from financial markets to cut deficits, expenditure and wages not only in Greece but also other countries.
Greece has already announced a tough consolidation programme, promising to cut the deficit by 4 per cent of GDP. Even Germany, a traditional champion of fiscal consolidation, never went that far in so short a period of time. Moreover, Greece is also detailing the measures taken to backup this consolidation effort. These do concern public jobs and wage freezes (for the higher incomes), but also measures to tax the rich (reintroduction of a tax on high fortunes, raising tax revenue on business profits). Nevertheless, this is not enough to appease European politicians and finance ministers. (A related issue is that they may not like a progressive consolidation programme targeting the rich and wealthy.) Instead, Greece in their view needs to gush “blood, sweat and tears”. Again, cynics might observe that if Greece did what it was told and cut everything (much as the US Treasury Secretary Andrew Mellon advised in the Great Depression that all businesses, farmers and workers should be allowed to go bankrupt), it would in any case be plunged into an economic depression. As a consequence, relative debt would still remain high, since what was being gained on the side of the nominator (lower deficit) would be lost on the side of the denominator (falling GDP).
In short, Europe is on a collision course with itself. Europe already seems to have forgotten the important lesson from the financial crisis that casino capitalism urgently needs to be tamed. Instead, some policy circles inside Europe are actually using financial market herd behaviour to push through a neoliberal model that otherwise would be hard to achieve in European democracies.
Europe is also completely losing sight of the fact that the internal market is an integrated and mutually dependent economy. The debt of Greece and some other countries, such as Spain, is held to a large extent by British, French and German banks, implying that any default would be costly for these banks. And if orthodox economists succeed in inflicting a long depression on the South of the monetary union, who will be buying the export goods from those countries forming the European core, so instead of this simplistic and populist “Greece-bashing”, Europe should urgently develop instruments promoting solidarity between member states like roads, rail networks and energy conservation – are now under way.
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