Monthly Archives: February 2015

Europe’s Debt: Lies and Myths

Europe’s Debt: Lies & Myths

Dispatches From The Edge

Feb. 23, 2015

 

“Debt, n. An ingenious substitute for the chain and whip of the slave driver”

Ambrose Bierce

Journalist & writer

 

“The history of an oppressed people is hidden in the lies and agreed myth of its conquerers”

 

Meridel Le Suer

Author & activist

 

 

Myths are dangerous precisely because they rely more on cultural memory and prejudice than facts, and behind the current crisis between Greece and the European Union (EU) lays a fable that bears little relationship to why Athens and a number of other countries in the 28-member organization find themselves in deep distress.

 

The tale is a variation of Aesop’s allegory of the industrious ant and the lazy, fun-loving grasshopper, with the “northern countries”—Germany, the Netherlands, Britain, Finland—playing the role of the ant, and Greece, Spain, Portugal, and Ireland the part of the grasshopper.

 

The ants are sober and virtuous—lead by the frugal Swanban house frau, German Chancellor Angela Merkel—the grasshoppers are spendthrift, corrupt lay-abouts who have spent themselves into trouble and now must pay the piper.

 

The problem is that this myth bears almost no relationship to the actual roots of the crisis or what the solutions might be. And it perpetuates a fable that the debt is the fault of individual countries rather than a serious crisis at the very heart of the EU.

 

First, a little myth busting.

 

The European debt crisis goes back to the end of the roaring ‘90s when the banks were flush with money and looking for ways to raise their bottom lines. One major strategy was to pour money into real estate, which had the effect of creating bubbles, particularly in Spain and Ireland. In the latter, from 1999 to 2007, bank loans for Irish real estate jumped 1,730 percent, from 5 million Euros to 96.2 million Euros, or more than half the GDP of the Republic. Housing prices increased 500 percent. “It was not the public sector but the private sector that went haywire in Ireland,” concludes Financial Times analyst Martin Wolf.

 

Spain, which had a budget surplus and a low debt ratio, went through much the same process, and saw an identical jump in housing prices: 500 percent.

 

In both countries there was corruption, but it wasn’t the penny ante variety of tax evasion or profit skimming. Politicians—eager for a piece of the action and generous “donations”—waved zoning rules, environmental regulations, and cut sweetheart tax deals. Hundreds of thousands of housing projects went up, many of them never to be occupied.

 

Then the American banking crisis hit in 2008, and the bottom fell out. Suddenly, the ants were in trouble. But not really, because the ants have a trick: they gamble and the grasshoppers pay.

 

The “trick,” as Joseph Stiglitz, Nobel Laureate in economics, points out, is that Europe (and the U.S.) have moved those debts “from the private sector to the public sector—a well-established pattern over the past half-century.”

 

Fintan O’Toole, author of “Ship of Fools: How Stupidity and Corruption sank the Celtic Tiger,” estimates that to save the Irish-Anglo Bank Irish taxpayers shelled out $30 billion Euros, a sum that was the equivalent of the Island’s entire tax revenues for 2009. The European Central Bank—which, along with the International Monetary Fund (IMF) and the European Commission, make up the “Troika”—strong-armed Ireland into adopting austerity measures that tanked the country’s economy, doubled the unemployment rate, increased consumer taxes, and forced many of the country’s young people to emigrate. Almost half of Ireland’s income tax now goes just to service the interest on its debts.

 

Poor Portugal. It had a solid economy and a low debt ratio, but currency speculators drove up interest rates on borrowing beyond what the government could afford, and the European Central Bank refused to intervene. The result was that Lisbon was forced to swallow a “bailout” that was laden with austerity measures that, in turn, torpedoed its economy.

 

In Greece’s case corruption was at the heart of the crisis, but not the popular version about armies of public workers and tax dodging oligarchs. There are rich tax dodgers aplenty in Greece, but Germany, Sweden, and many other European countries spend more of their GDP on services than does Athens. Greece spends 44.6 percent of its GDP on its citizens, less than the EU average and below Germany’s 46 percent and Sweden’s 55 percent.

 

And as for lazy: Greeks work 600 hours more a year than Germans.

 

According to economist Mark Blyth, author of “Austerity: The History of a Dangerous Idea,” Greek public spending through the 2000s is “really on track and quite average in comparison to everyone else’s,” and the so-called flood of “public sector jobs” consisted of “ 14,000 over two years.” All the talk of the profligate Greek government is “a lot of nonsense” and just “political cover for the fact that what we’ve done is bail out some of the richest people in European society and put the cost on some of the poorest.”

 

There was a “score” in Greece. However, it had nothing to do with free spending, but was a scheme dreamed up by Greek politicians, bankers, and the American finance corporation, Goldman Sachs.

 

Greece’s application for EU membership in 1999 was rejected because its budget deficit in relation to its GDP was over 3 percent, the cutoff line for joining. That’s where Goldman Sachs came in. For a fee rumored to be $200 million (some say three times that), the multinational giant essentially cooked the books to make Greece look like it cleared the bar. Then Greece’s political and economic establishment hid the scheme until the 2008 crash shattered the illusion.

 

It was the busy little ants, not the fiddling grasshoppers that brought on the European debt crisis.

American, German, French, and Dutch banks had to know that they were creating an unstable real estate bubble—a 500 percent jump in housing prices is the very definition of the beast—but kept right on lending because they were making out like bandits.

 

When the bubble popped and Europe went into recession, Greece was forced to apply for a “bailout” from the Troika. In exchange for 172 billon Euros, the Greek government instituted an austerity program that saw economic activity decline 25 percent, unemployment rise to 27 Percent (and over 50 percent for young Greeks). The cutbacks slashed pensions, wages, and social services, and drove 44 percent of the population into poverty.

 

Virtually all of the “bailout”—89 percent—went to the banks that gambled in the 1999 to 2007 real estate casino. What the Greek—as well as Spaniards, Portuguese, and Irish—got was misery.

 

There are other EU countries, including Italy and France that, while not in quite the same boat as the “distressed four,” are under pressure to bring down their debt ratios.

 

But what are those debts?

 

This past summer, the Committee for a Citizen’s Audit on the Public Debt issued a report on France, a country that is currently instituting austerity measures to bring its debt in line with the magic “3 percent” ratio. What the Committee concluded was that 60 percent of the French public debt was “illegitimate.”

 

More than 18 other countries, including Brazil, Portugal, Ecuador, Greece and Spain, have done the same “audit,”, and, in each case, found that increased public spending was not the cause of deficits. From 1978 to 2012, French public spending actually declined by two GDP points.

 

The main culprit in the debt crisis was a fall in tax revenues resulting from massive tax cuts for corporations and the wealthy. According to Razmig Keucheyan, sociologist and author of “The Left Hemisphere,” this “neoliberal mantra” that was supposed to increase investment and employment did the opposite.

 

According to the study, the second major reason was the increase in interest rates that benefits creditors and speculators. Had interests rates remained stable during the 1990s, debt would be significantly lower.

 

Keucheyan argues that tax reductions and interest rates are “political decisions” and that “public deficits do not grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes to legitimize austerity policies that will allow the transfer of value from the working classes to the wealthy ones.”

 

The International Labor Organization recently found that wages have, indeed, stalled or declined throughout the EU over the past decade.

 

The audit movement calls for repudiating debt that results from “the service of private interests” as opposed to the “wellbeing of the people.” In 2008, Ecuador canceled 70 percent of its debt as “illegitimate.”

 

How this plays out in the current Greek-EU crisis is not clear. The Syriza government is not asking to cancel the debt—though it would certainly like a write down—but only that it be given time to let the economy grow. The recent four-month deal may give Athens some breathing room, but the ants are still demanding austerity and tensions are high.

 

What seems clear is that Germany and its allies are trying to force Syriza into accepting conditions that will undermine its support in Greece and demoralize anti-austerity movements in other countries.

 

The U.S. can play a role in this—President Obama has already called for easing the austerity policies—through its domination of the IMF. By itself Washington can outvote Germany, the Netherlands, and Finland, and could exert pressure on the two other Troika members to compromise. Will it? Hard to say, but the Americans are certainly a lot more nervous about Greece exiting the Eurozone than Germany.

 

But the key to a solution is exploding the myth.

 

That has already begun. Over the past few weeks, demonstrators in Greece, Spain, Italy, Germany, Portugal, Great Britain, Belgium and Austria have poured into the streets to support Syriza’s stand against the Troika. “The Left has to work together having as its common goal the elimination of predatory capitalism” says Maite Mola, vice-president of the European Left organization and member of the Portuguese parliament. “And the solution should be European.”

 

In the end, the grasshoppers might just turn Aesop’s fable upside down.

 

—30—

 

 

 

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Europe: Shaking The Temple

Europe: Shaking The Temple

Dispatches From The Edge

Conn Hallinan

Feb. 12, 2015

 

In the aftermath of last month’s Greek election that vaulted the left anti-austerity party Syriza into power, armies of supporters and detractors—from Barcelona to Berlin—are on the move. While Germany’s Finance Minister Wolfgang Schaueble was making it clear that Berlin would brook no change in the European Union’s (EU) debt strategy that has impoverished countries like Greece, Spain, Portugal, and Ireland, left organizations from all over Europe met in Barcelona to drew up a plan of battle.

 

As Schaueble was stonewalling Greek Finance Minister Yanis Varoufakis, the Party of the European Left (PEL), along with assorted Green parties, gathered for the “1st European South Forum” in Catalonia’s capital to sketch out a 10-point “Declaration of Barcelona” aimed at ending “austerity and inequality,” and promoting “democracy and solidarity.”

 

At first glance, the past two weeks look ominously like September 1914, with opposing forces digging in for a massive bloodletting.

 

On one hand the European Central Bank (ECB)—one of the “Troika” members, that includes the European Commission (EC) and the International Monetary Fund (IMF)—brusquely denied Greece the right to sell government bonds to raise money. Representatives of the Greek government also got little support from other leaders of EU member countries to reduce Athens’ unsustainable $360 billion debt. Britain’s Chancellor of the Exchequer, Gordon Osborne, grimly opined that “The standoff” between the Eurozone and Greece was “endangering the global economy.”

 

On the other hand, the Syriza government made it clear that Greece was finished with the austerity policies that crashed its economy, made more than a quarter of the population jobless, and shredded essential social services. And the Barcelona Declaration is a direct challenge to the economic formulas of the Troika and German Chancellor Angela Merkel: “Merkelism is not invincible. Austerity can stop. Europe can change,” reads the document,

 

Behind the trenches, however, the situation was far more complex than two sides bunkered down in a winner-take-all battle, and the politics around economic policy more fluid than one might initially conclude.

 

While Greece will certainly not go back to the failed formula of selling off state-owned enterprises, huge budget cuts, layoffs and onerous taxes, neither is it eager to exit the Eurozone. The latter is composed of 18 out of the 28 EU members that use a common currency, the euro.

 

For all the sturm und drang coming from Berlin and EU headquarters in Brussels, Syriza’s program is anything but radical, more social democratic than Bolshevik. And a growing number of economists and Europeans are concluding that taking a hard line on Greece might, in the end, endanger the entire EU endeavor.

 

As a strategy for getting out of debt, austerity has an almost unbroken track record of failure, starting with Latin American in the late 1980s. It has certainly been catastrophic for Greece and, to a lesser extent, Ireland, Portugal, and Spain, and virtually no European country has dodged its impact on employment and social services.

 

“Austerity” is not just about cutbacks and budget tightening. By increasing unemployment, and introducing “temporary” labor contracts, it severely weakens unions and the ability of workers to bargain for higher wages and improved benefits. Indeed, according to the International Labor Organization, since 2007 wages have either stalled or fallen in most EU countries.

 

Austerity also accelerates economic inequality. According to the Credit Suisse Research Institute, the top 1 percent now control 48.2 percent of the world’s wealth, and inequality in Europe is the highest it has been in a half century. More people are poorer than they were a decade ago, while a few are richer than ever. The latter will be reluctant to moderate the policies that have given them a half-decade of unalloyed profit making.

 

The Greek election was a shot across the bow for this strategy and a warning that, while wealth and political power may be related, they are not the same thing: Governments can be overturned.

 

But compromise on the Troika’s side will be difficult, in part because the austerity strategy has been so lucrative for the EU’s elites, in part because the intransigence of many EU leaders is driven by multiple devils.

 

There is the “why not us?” devil. The ruling parties in Ireland, Portugal and Spain are spooked, because if Syriza gets a deal on the Greek debt that doesn’t involve crucifying most its population, their own impoverished constituents are going to be asking some hard questions and demanding something similar.

 

Spain’s right-wing Popular Party is nervously looking over its shoulder at the growing strength of the anti-austerity Podemos party. It was no accident that the ELP chose Spain for its conference: Podemos is drawing 24 percent in national polls and is the only party in the country currently growing. It is now the second largest in Spain. With local and national elections coming up this year—the former in May, the latter in December—Spain’s two mainstream parties are running scared.

 

So, too, are the governments in Portugal and Ireland that went along with the austerity demands of the troika and now face expanding anti-austerity parties on their left.

 

Another devil is the right, although last May’s European parliamentary elections demonstrated that when the left clearly articulated an anti-austerity program, voters picked it over the right. What those elections also showed, however, is that when the center-left went along with austerity—as it did in Britain and France—the right made gains.

 

German Chancellor Andrea Merkel is apprehensive about losing votes to the right-wing, anti-EU Alternate Party for Germany. British Prime Minister David Cameron is trying to fend off the rightist United Kingdom Independence Party, and French President Francois Hollande is running behind Marine Le Pen of the anti-immigrant, anti-Semitic National Front Party.

 

There are strong right-wing parties in Denmark, Finland and the Netherlands, although, in the latter two, their poll numbers fell in the European parliamentary elections.

 

What those last May elections suggest is that any effort to co-opt the right’s politics or base by moving in its direction does little more than feed the beast. Greece’s experiences are instructive. The neo-Nazi Golden Dawn Party is also anti-austerity, but Syriza trounced them in last month’s election. At the same time, Syriza’s warning that austerity fuels the politics of the right is almost certainly true. In an economic crisis there are always those who turn to the dark side and its simplistic explanations for their condition: immigrants, Roma, Jews, and “slackers.”

 

While the European right is worrisome, it has generally lost head-on battles with the left, because the right has little to offer besides the politics of racism and xenophobia.

 

And Europe needs answers. The Greek crisis is a crisis of the entire EU. To one extent or other, every country—even Germany, the EU’s engine—is characterized by falling or anemic wage growth, increasing economic inequality, spreading deflation, and an overall decline in living standards. It is this general malaise that the Barcelona Declaration is taking aim at.

 

Pierre Laurent, head of the French Communist Party and president of the ELP, told the Barcelona forum that “2015 is a decisive year, the year of change,” and that Syriza’s victory will “have a huge impact throughout Europe because for the first time since the crisis, it will force all European governments to discuss and alternative to austerity.”

 

The Declaration proposes a program for relieving unemployment, creating sustainable development, expanding credit, resisting “racism and xenophobia,” and a European debt conference along the lines of the 1953 London Debt Agreement that relieved Germany of half its post-World War II debts.

 

How the Greek debt crisis will play out over the next few months is not clear.

 

The troika may take a hard line, in which case Greece may be forced to leave the Eurozone, a move that Berlin claims would have little impact. Other analysts are not so certain.

 

“The predominant German view” that a Greek exit would be a “minor shock for the Eurozone and a non-event for the global economy” says Financial Times analyst Wolfgang Munchau, “could not be more wrong.”

 

Faced with a possible meltdown of the European Union or the Eurozone and a growing insurgency on its left, the Troika may blink and give the Greeks part of what they want: a reduction in the interest rate on the debt—maybe even a write-down on some of it—and an extension of the payment schedule. What they will not get—because the Greek electorate has made it clear they will not accept—is more austerity.

 

That is the contagion—sometimes called the “Greek virus””—that is already spreading to Spain, Portugal and Ireland and which is likely to jump to Italy, France and Central Europe.

 

The Greeks have shaken the pillars of the temple. Inside the mighty tremble.

 

—30—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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