We are watching economic injustice crush a nation before our eyes.
On 20 March, Greece must meet the next tranche of debt repayments. The E130bn Euro bailout package recently negotiated by Prime Minister Lucas Papademos has secured the short term safety of Greece’s creditors – at a dire cost to Greek society.
Neoliberal dogma, perpetrated by the European Union (EU), European Central Bank (ECB) and International Monetary Fund (IMF) is writing Greek fiscal policy for them; slashing public spending, selling state assets and dismantling social cohesion. Unemployment is entrenched at over 20 per cent (1), one in four businesses have gone bankrupt (2), and 40 per cent more people killed themselves in Greece during the first five months of 2011 compared to the previous year (3). It is a harrowing reminder of the dangers of an ideology that places monetarism before people.
Put simply, the causes of the current euro zone crisis are twofold: there is a Western credit crisis and there is a euro zone structural crisis.
Since the 1980s, western prosperity has been increasingly driven by consumer debt. This was fuelled by credit made readily available by financial institutions seeking short term profit. This created a bubble of artificial asset value, and in 2008, that bubble burst. Western Governments acted to bail out insolvent banks, and in doing so, converted private consumer debt into public debt. European national debt and deficits soared across the continent and as a result, the cost of their borrowing rose, placing overwhelming pressure on European budgets.
The credit crisis was aggravated by a systemic imbalance in the Euro zone. The single currency locked the exchange rate of its members, preventing currency values from being calibrated to reflect respective labour costs across the economic block. Low wages and reduced social protection in Germany kept the county’s exports cheap. This created the environment for a trade imbalance. Trade surpluses in northern Europe were gained off the back of trade deficits in the south. So in 2008, when Western governments were forced to pump cash into financial sectors, the economies of southern Europe could not take the strain.
The idea that Greek laziness and overspending has brought the crisis upon themselves is racist bilge. In 2008, the average number of working hours per person in Greece was 2120 compared to 1430 in Germany and the average retirement age in Greece is higher than that of Germany (4). Meanwhile the Greek government spends less as a percentage of GDP than the European average (5).
As with most of the world, unreported tax is one of the single most important factors undermining state revenues in Greece. And, as with most of the rest of the world, the biggest offender is the rich minority. A study at the LSE showed that that the richest 1 per cent in Greece under-report their incomes by 24 per cent, compared with 6 per cent by the average earner (6).
The current ‘solutions’ authored by the neoliberal Troika that helped oversee and nurture the economic system that created the credit crisis, fails to grapple its inherent flaws. And they are prepared to bypass democracy to preserve their unfair and dysfunctional system.
With Greek elections due in April, the Troika is demanding that all Greek political parties agree to not oppose the package of austerity required to keep financial sectors sweet – irrespective of public opinion and election results. The German Finance Minister, Wolfgang SchÃ¤uble, has even reportedly talked of suspending Greek elections if political parties do not comply with the Troika’s doctrine(7). The democratic sphere is being reduced and squeezed, steadily removing the Greek electorate from decisions over their country’s fiscal future.
An immediate alternative could be twofold: allow a democratic Greek default, and reform the euro zone financial sector.
Even in a political environment of singular vision, the three main parties opposed to austerity are already polling at more than 40 per cent – enough to gain a place in a future coalition government(8). Greece must be given the opportunity to leave the Euro, and regain democratic control of their economy. A government accountable to Greek society, rather than global financial elites, could crack down on domestic tax evasion. A 2011 publication showed that even in the UK, such is the abundance of easily collectable tax, that for every £1 spent on tax collection, £10 is recouped in revenue 9). But it is by devaluing their currency that Greece can break off from the euro zone trade imbalance, and reduce their crippling trade deficit.
Pan out of Greece, and revolutionary solutions are needed to reverse the corrosive ideology that pulls the monetary strings. European financial institutions must be forced by law to retain more capital so that they can afford their own defaulting debtors – rather than the Euro zone tax payer. The legal minimum of capital reserves must be raised substantially and lower ratios of fractional reserve banking need to be enshrined in legislation.
These initiatives would reduce government vulnerability to banking insolvency, but they would also reduce the sectors capacity to lend. To offset this, a European Green Investment Bank (EGIB) could be created to lend to sustainable businesses and industries. The EGIB could be a multidimensional structure, ranging from national funds to localised, democratic micro-financing schemes. And it could be paid for by new banking levies, a financial transaction tax and the capital that is currently being planned to increase European banking liquidity and bailout funds.
National and devolved EGIB financing could then be used to kick start long term sustainable industry in countries that are most disadvantaged by the current trade imbalance. Energy bills could be slashed and millions could be put back into work by a continent wide push to reinsulated homes, fit solar panels on south facing roofs and install super fast broadband. The high value community assets created, and the increased economic productivity facilitated, would make this initiative non-inflationary. In the medium to long term it would pay for itself, allowing time for banks to restructure themselves in accordance with the above regulation.
Across the West, a stagnant political orthodoxy has failed to defend social wellbeing against an increasingly technocratic economic system. The terms of the Greek bailout, and Europe’s package of crippling austerity, are designed by monetarists, for monetarists. They seek to preserve at all costs, the financial engine that pumps billions of dollars up into a lofty stratosphere, sparsely populated by a global elite – apparently immune from tax, their own errors, and democracy in general.
Economies need to be brought back under democratic control. They need to be run by society, for society; creating jobs, opportunities and general well being. A new perspective is needed to shift the dangerous consensus; that life exists to create wealth. It needs to be the other way around. Greece must not become the latest casualty of economic injustice.
1 The Huffington Post: http://www.huffingtonpost.com/2012/02/15/greek-debt-crisis-woman-suicide_n_1278857.html
2 New York Times: http://www.nytimes.com/2012/02/19/magazine/the-way-greeks-live-now.html?_r=1&pagewanted=all%3Cbr%20/%3E
3 Wall Street Journal: http://online.wsj.com/article/SB10001424053111904199404576538261061694524.html
4 Economics News Paper: http://economicsnewspaper.com/german/french-study-southern-Europeans-to-work-longer-and-harder-than-german-31077.html
5 Centre for American Progress: http://www.americanprogress.org/issues/2010/05/greek_myth_profligacy.html
6 New Economic Foundation: http://www.neweconomics.org/blog/2012/02/16/greece-should-reject-the-troika-and-default-on-its-own-terms
7 Faisal Islam, Chanel 4 Economics Editor: http://blogs.channel4.com/faisal-islam-on-economics/Eurozone-reaches-its-lehman-moment-as-germany-insults-greece/16278
8 New Economic Foundation: http://www.neweconomics.org/blog/2012/02/16/greece-should-reject-the-troika-and-default-on-its-own-terms
9 Compass, Plan B: A good economy for a good society: http://clients.squareeye.net/uploads/compass/documents/Compass_Plan_B_web.pdf
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This post was written by Alfie Stirling