Jörg Bibow
This week a slow-motion train wreck hit the wall in Europe. Greece’s Syriza government came to power earlier this year on a mandate to keep Greece in the euro but end austerity. It was clear from the start that this project could only work out if Greece’s euro partners finally acknowledged that their austerity policies of the past five years had failed and that it was about time to change course and actually start helping Greece to recover.
This was not such an outrageous proposition. Any sane and economically literate person would consider a 25-percent decline in GDP and a youth unemployment rate north of 50 percent as evidence that the utterly brutal troika-imposed austerity experiment had backfired badly. Any European of normal emotional disposition would look at the humanitarian crisis in Greece with horror and shame. Yes, this is really happening in Europe, inside the European Union, in the 21st century! There was a time when Europeans appealed to their common destiny and spelt solidarity in capital letters. There was a time when Europe felt strongly that its future place in the world would only be one of peace and prosperity if the nations and peoples of Europe respected each other and joined forces to act constructively and in unison – “united in diversity”.
Not so anymore. In Berlin, Germany, in Dr. Schäuble’s “parallel universe”, austerity works always and everywhere, and the more the better – no matter what the facts might say on this planet. If anything went wrong in Greece, it must be the Greek’s own fault, 100 percent. Because the Greeks are lazy, corrupt, and untrustworthy – as Germany’s rotten media, plagued by inhumanly stupid economic journalism, have been preaching to the German public for many years now. So the Germans believe what “Mama” Merkel tells them. And the Germans even believe that their finance minister represents unquestionable economic wisdom and rectitude: the only finance minister on earth who understands how to “balance the budget” year after year so as to protect their grandchildren from the evils of debt. These profound illusions and delusions are proving a catastrophe for Europe (and beyond). Once again, the collective folly of the German people risks exposing Europe to the naked forces of barbarism.
What went wrong? Is the simple answer that the ultimate mistake was to let the wicked Greeks have the sound euro in the first place? They cheated, went bust, and now have to pay the price for their crimes; debtors’ prison for generations, right? Better still, expulsion of the wicked would clean to euro currency union and make it fitter for the future, as many Germans, including their political leaders, seem to believe these days. Too bad they are still mistaking the crisis of an ill-constructed currency union as primarily a “sovereign debt crisis” of one of its smaller members.
No doubt Greece is in crisis, in economic, political, and humanitarian crisis. But the actual crisis in Europe today runs much deeper and is bound to ultimately tear the continent apart unless the actual fractures that undermine the euro get finally addressed. Perhaps the most remarkable thing is that Greece’s euro partners, including other euro debtor nations, practiced unity and solidarity in cursing Greece alone for the ill-fate of their euro project. Beware that throwing ballast off a sinking ship may slow but not prevent the ship from sinking unless the leakage and its underlying causes get fixed too. And you might even capsize quicker if you handle the supposed excess ballast wrongly.
So there still is solidarity, in a way, but the wrong kind of solidarity: solidarity against the Greeks and their unconventional left-wing government, based on the illusion that taxpayers all over Europe are bailing out the lazy Greeks. German Chancellor Angela Merkel even proclaimed that the Greeks were made a “generous offer” – which their current government irresponsibly declined. The supposedly “generous offer” consisted of fresh loans that would have enabled Greece to repay earlier “bail-out” loans, creditors’ self-help rather than actual help for Greece. And of course those fresh “bail-out” loans had strings attached to them, more of the same austerity and structural reform conditions that have already wiped out a quarter of the Greek economy: a primary surplus of 3.5 percent by 2018 rather than 4.5 percent agreed to by the previous government, shrinking GDP by another, say, 8 percent rather than 10 percent or so; how very generous indeed. While widely perceived as generous gifts by European taxpayers to the lazy Greeks, Greece’s official creditors were merely trying to facilitate a roll-over of their ill-inspired bail-outs of creditor country banks of five years ago.
As the IMF correctly diagnosed, Greece was insolvent in 2010. If Greece had defaulted back then, as it should have, creditor country banks would have suffered huge losses. Taxpayers in Germany, France, and the Netherlands, in particular, would have ended up bailing out their reckless bankers, who were responsible for spreading financial ruin across the continent. Instead, a bail-out was imposed on the Greeks, and, as a result of it, today euro area taxpayers, including member states that are poorer than Greece, feel they are getting fleeced by the Greeks whom they have so generously supported all along. What nonsense!
Worse, even the IMF was brought in as part of the con, and hence taxpayers of many developing countries far poorer than Greece are on the hook today for the folly of the authorities involved. Supposedly the Greeks should even feel ashamed for ripping off the rest of the world – and humbly sign off on their generous offer (designed to finish of the job of destroying their economy and society). How very disrespectful of them, as the inventors of democracy, to consider the democratic mandate of their own government as standing above the democratic mandates of their euro partner governments.
And that is of course just another grand illusion. Did the creditor country governments really have a democratic mandate to organize the con trick of getting their banks bailed out and shoulder the Greeks with official debts that could never get repaid, especially as the Greek economy got crushed along the way by brutal austerity? If that was necessary to rescue the euro, lacking any defenses at the time, why do the Greeks alone have to pick up the bill? After sacrificing Greece to save the euro, do Greece’s euro partners really have a democratic mandate today to inflict another economic massacre on Greece instead of organizing proper solidarity? Democracy starts with speaking truth to the people whose interests you purportedly represent. Why do euro area taxpayers believe they have been too generous to those lazy Greeks and can’t possible “help” them even more?
Europe used to see itself as the beacon of democracy in the world. But democracy appears to be the ultimate victim of the crisis of the euro currency union as one people turns against another. The euro as a means to prosperity turned out to be a pipe dream. As a flawed and dysfunctional currency union, it is impoverishing the continent instead. For how much longer will it be a means to secure peace then? It is ludicrous to put the blame for the euro crisis at Greece’s door in particular. Greece’s share of “guilt” for today’s terrific mess is probably similar to Greece’s share in the union’s GDP. Member states share responsibility for the euro blunder. They should act accordingly, in proper solidarity.
Most importantly, in dealing with the legacies of their joint blunders in solidarity, they need to look towards the future and remember what the European ideal was all about. It is high time to re-launch the euro on a sounder footing, beginning with organizing investment rather than insane austerity. Through joint investment into their common future Europeans need to refocus on thriving for higher productivity, efficiency, and living standards – rather than getting entrapped in a race to the bottom in the name of “competitiveness” (misconceived as underbidding each other in terms of wages and social protection). For Europe there isn’t all that much room to fall further from here without unleashing mayhem. Greece may be the final wake-up call.
Jörg Bibow is Professor of Economics at Skidmore College and a Research Associate at the Levy Institute at Bard College. His research focuses on central banking and financial systems and the effects of monetary policy on economic performance, especially the monetary policies of the Bundesbank and the European Central Bank.