The Real Greek Crisis, – Bryan Gould

The Real Greek Crisis

By Bryan Gould

Most people will feel that they don’t need to look far for an explanation as to what lies behind the Greek crisis. Lazy reporting and racial stereotyping will persuade them that the Greeks – a feckless lot, no doubt – have spent more than they should, got into debt, taken out loans from the hard-working Germans and now won’t repay the loans because they refuse to tighten their belts.

But there is another narrative that tells a somewhat different story. That story is one of a powerful economy enforcing its will on its weaker neighbours and refusing to acknowledge that it has thereby made it impossible for them to dig themselves out of a hole.

The story begins at the turn of the century when the Greeks, along with many others, were persuaded that being part of Europe required them to give up their own currency and accept the euro. A single currency meant a single monetary policy and a single central bank – and guess who decided what that policy should be and what the central bank should do?

Germany, by far the most powerful economy in the euro zone, ran it to serve its own interests, but life wasn’t so easy for the weaker countries. The Greeks, for example, with their smaller and less developed economy, had no chance of surviving the competition from efficient German manufacturing. We do not need the benefits of hindsight to make this point, since many commentators, myself included, foresaw the inevitability of this outcome at the time.

As things began to go wrong, and they had to borrow to keep their heads above water, the Greeks were assured that they could look to the Germans and others to help them out. But this was in the days of cheap and plentiful credit; when the Global Financial Crisis struck and the cheap credit dried up, the creditors who had happily lent to the Greeks wanted their money back.

The Greeks didn’t have the money. But the price they had to pay for borrowing yet more from the IMF and the European Central Bank was to accept a programme of savage austerity. The cuts they have already been forced to make have meant that 25% of the Greek economy has simply closed down and 60% of young people are without a job. Again, as some commentators observed at the time, it was impossible to see how the Greeks could ever – from an already weak economy that is now so much smaller and still going backwards – find the resources needed to repay their debts.

And so it has proved. The price that creditors insist upon for a continued bail-out is yet more austerity which can only mean yet more closures and unemployment. Leaked papers show that the creditor institutions themselves recognise that more austerity will make it even less possible for the Greeks to pay back their debts.

So why are the Germans and other creditors determined to force the Greeks into such a damaging dead end? The answer is that they care little for the travails of the Greek people. Their focus is on those countries that are watching the Greek situation closely – countries like Spain, Portugal, Bulgaria, even Italy, that have faced similar problems, and suffered similar penalties, but that have not yet been compelled by pressure from their populations to resist a further descent into even more austerity.

The fear from the financial establishment and from the Germans in particular is that the Greeks might find a way to demonstrate to other similarly afflicted countries in the euro zone that there is a way out – and that those other countries would then follow a similar course. The rational course for the Greeks to take, after all, would be to leave the euro zone, restore their own currency and then print the drachmas needed, as monetarily sovereign countries are able and entitled to do, and repay their debts in devalued drachmas.

The difficulty that Greek Prime Minister Tsipras faces is that he has committed to resist austerity but also to retain the euro. It is doubtful that he can achieve both. In the forthcoming referendum, no one can be sure whether the dislike of austerity or the fear of leaving the euro zone will prevail. The poor and the unemployed – those who have suffered most from austerity – will vote to reject the new bail-out offer; the holders of assets and the pensioners will vote to stay with the euro.

Either way, the outlook for the euro looks bleak. In the long run, the attempt by the financial establishment to over-ride the wishes and interests of ordinary people and to negate the power of a democratic government to protect them will fail. The only question is as to how many more crises there will be and how much more suffering has to be endured before common sense prevails.

Bryan Gould 

“I once contested the Labour party’s leadership myself. The answers to the dilemmas facing British politicians today seem to me to be more clear-cut than was the case in 1992. It is easier now, with a longer perspective on the orthodoxy that has prevailed for so long, to see what has gone wrong, and to see what is needed to put it right. What is needed now is to unlock the intellectual straitjacket in which Labour has been shackled for too long. Where is the leader to deliver that?” Since Bryan Gould wrote these words,  Jeremy Corbyn agreed to stand as leader, and there is hope for a change from the intellectual straitjacket Bryan speaks of.

Can the Eurozone survive its Crisis?

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In May 2012, Marco d’Eramo wrote:

It is plain to all: monetary union is dividing Europe. The divide is political, social, economic in particular. The euro was designed as a tool to cement European political union and to anchor German prosperity to the rest the Continent. Instead, it has served to highlight the gap between town and country, led to economic collapse and exacerbated nationalism and xenophobia. A collateral by product, but no less devastating, is that the euro is undermining democracy, thwarting universal suffrage, cancelling two centuries of popular gains, erasing with a stroke of the pen essential elements of civilization. (1)

Professor Bill Mitchell, prominent heterodox MMT economist, explains in his 30 minute lecture, that the underlying problems with the structure and neoliberal assumptions of the Eurozone, made the Eurocrisis resulting from the Balance Sheet recession caused by the financial sector, inevitable.  There are really only two options for recovery – a full federal system or a return to currency sovereignty.

Professor Bill Mitchell on the Eurocrisis, May 1, 2012

 

Bill Mitchell gave this presentation in Melbourne at an event hosted by the Monash University European Union Centre.

Professor Bill Mitchell concludes that a full federal system has little support in the populations of Eurozone countries and recommends an orderly return to sovereign currencies, but as we have seen in the past year, let alone days, that seems unlikely.  Some argue that a crisis will be staved off by fudging until after the German national elections.  Others think that the unacceptable terms of the Cypriot bank bailout suggests that there is a growing sense here that Germany is up to something big, perhaps even a decision to get the hell out of the euro. (2)

However, there is no doubt that there has been, and certainly still is, a large degree of brinkmanship (3).  The ‘shock doctrine’ of the Greek ‘experiment’ has been used across the EZ  to justify austerity policies and to frighten the electorates into accepting fiscal  integration.

‘This structure will ensure the austerity mindset, firmly in place among global capitalists, will dominate and spread across all of Europe. This mindset will be hard-wired into the rules and regulations…. Not only will democracy be diminished, the result could be catastrophic for peace within Europe itself.’ (4)

What will happen now? There is no doubt that the Eurocrisis will not go away until the contradictions upon which the EZ was conceived are resolved .. and there is no doubt that the undemocratic behaviour of the Troika (EU, ECB and IMF) has been ruthless, as Michael Burke explains with regard to Cyprus, in his Guardian article:

The raid has been instructed by the “Troika” – the European commission, the IMF and the European Central Bank – as part of a characteristic “take it or leave it” ultimatum to the Cypriot government. …

However, he concludes .. it is foolish of the Troika to assume that its confiscation of Cypriot savings will have no international implications. Savers all across Europe will look on in horror, and are bound to wonder whether it could happen in their own countries. It is entirely possible they will respond by shifting their savings into state or postal savings banks at the very least, even if outright bank runs are avoided. If this happens on sufficient scale, it could further undermine the fragile banking system in a number of countries.(5)

That popular resistance is also growing is evidenced by the European anti-austerity movements, the demonstrations, national strikes and the electoral success of the Grillinis in Italy.  Political polarisation is occurring with a frightening rise in extreme right wing/fascist parties.

What a disastrous mess with devastating consequences for ordinary people, particularly the young … and for what?  The accumulation of more and more wealth into the hands of the extremely few. Its back to the future Neofeudalism.

 Update:  Alexis Tsipras: Greece could be the spark for defeating austerity across Europe – video interview with Seamus Milne

http://www.guardian.co.uk/commentisfree/video/2013/mar/19/alexis-tsipras-syriza-greece-video-interview 

(1)  http://revolting-europe.com/2012/05/17/theres-just-one-choice-save-the-euro-or-save-our-economies/

(2)  http://hat4uk.wordpress.com/2013/03/18/cyprus-disaster-open-dissent-in-merkels-cdu-as-schaubles-attempt-to-avoid-responsibility-for-cyprus-depositors-dismissed-as-bare-faced-lie/

(3)  https://think-left.org/2012/06/15/brinkmanship-and-the-euro-crisis/ 

(4)  Democracy in the Euro-zone is under threat

(5)  http://www.guardian.co.uk/commentisfree/2013/mar/17/savers-horror-troika-raid-cyprus 

 

GDP DATA SHOWS BRITAIN IS THE WEAKEST OF ALL THE LARGE ECONOMIES

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First posted Sunday, 3 February 2013 at Socialist Economic bulletin

GDP Data Shows Britain Is the Weakest of All the Large Economies

By Michael Burke

Britain is only the second large economy to report GDP data for the final quarter of 2012.  It showed a contraction of 0.3%.  China has already reported its GDP, which accelerated in the 4th quarter – Chinese GDP being 7.9% higher compared to a year ago.  In stark contrast there has been no growth in the British economy over the same period, with GDP unchanged from the 4th quarter of 2011.
Other leading economies will report the final quarter growth of 2012 by the end of this month.  In terms of Purchasing Power Parities (PPPs), the UK economy produces slightly over US$2 trillion.  The table below shows economy in relation to other economies of a similar size or greater.  The data is based on the most recent OECD estimates of constant PPPs at 2005 prices.

Table 1

13 01 29 Table 1

Where the comparable data is available for these economies to the 3rd quarter of 2013, the British economy has the weakest economy growth over the period.  Only the performance of the Euro Area economy was worse, contacting 0.6% from a year ago compared to zero growth in Britain.
Since the global crisis in 2008 the Chinese, Indian and Brazilian economies have all recovered the output lost in the recession and have grown further.  GDP in China, India and Brazil is now more than 40%, 30% and 10% higher than at the outset of the crisis respectively.
Growth in the other large economies has been slower.  The Russian economy has also fully recovered and has grown by a little over 3% since the crisis began.  The chart below shows the weaker growth economies since the crisis began at the beginning of 2009.  Only the US and German economies have fully recovered at all, a recovery of just 2% above the pre-recession peak.  The French economy is still 0.8% below its peak while both the Euro Area and Japanese economies are 2.4% below their peak before the recession began.  The performance of the British economy is the worst of all these economies, being 3% below the prior peak.  These comparative data do not include the contraction of the British economy in the 4thquarter GDP.

Figure 1

13 02 03 Figure 1

In terms of broad categories of output, the weakness in the British economy is concentrated in manufacturing and construction as the chart below from the Office for national Statistics shows.  In fact, even within the services sectors, only two categories of services are higher now than where they were in 2008.  These are business and financial services and government services.  The former represents the commitment of the government to supporting the finance sector, while the latter represents its inability to cut the total of current government spending while poverty is increasing.  This is a broad-based failure of the economy and of economic policy.

Figure 2
13 01 03 Chart 2

The fall in investment Gross Fixed Capital Formation (GFCF) is the main brake on the recovery output in the OECD countries since the crisis began.  In Britain the shortfall (before the 4th quarter data) accounts for more than the entirety of the slump.  Among the weaker large economies identified above, Britain has the weakest level of investment since the crisis, down 20.1% since the crisis.  Even the crisis-torn Euro Area as a whole is not as weak, down 17.8% although some countries within the Euro Area are much weaker than Britain.

Figure 3
13 02 01 Figure 3

Whatever the outcome of the data for the final quarter of 2012 for the other large economies, to date the British economy has been the weakest of all the large economies. This is driven by the weakness of investment, which accounts for the whole of the slump and which is also the weakest of all those major economies.

(emphasis added)

Other Michael Burke articles reposted on Think Left:

PRODUCTIVITY CRISIS IN THE BRITISH ECONOMY

20 YEARS OF LOST OUTPUT

The Autumn Statement and long-term Austerity

Investment Slump Greater Than Whole Loss of British GDP

BRITAIN’S EXPORT PERFORMANCE IS WOEFUL

The new recession is directly made in Downing Street

WHY MORE ‘AUSTERITY’ IS ON THE WAY

THE UK’S BUDGET DEFICIT IS RISING NOT FALLING

Truths behind global debt crisis – Max Keiser interviews Steve Keen

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Published on Aug 25, 2012 by PressTVGlobalNews
In this edition of the show Max interviews Steve Keen from Debtdeflation.com. It has been five years since global debt crisis began. The debt is now so great that it can no longer be hidden. Max discusses the issue with Steve to see what triggered the current debt crisis, what the response to it was and where we stand now. Steve also comments on the latest global debt crisis and banker’s role in the current situation.Steve Keen is a professor in economics and finance at the University of Western Sydney and the author of Debunking Economics.