economic crisis

The showdown over the bailout is extremely dangerous, and obscures many serious issues that need to be dealt with in Greece and in the European Union as a whole.

The confrontation with Greece’s creditors can be seen as a clash between populism and dogma: on one side, a government that gained power by exploiting anger and despair; on the other, the creditor countries and organizations that insist on austerity even in the face of evidence that it is destroying a country and its people.

The first of many clashes between Alexis Tsipras and the status-quo powers concerns not debt restructuring and structural reforms but EU-Russian relations. A statement published on the January 27, 2015, claimed all twenty-eight leaders of the EU agreed that Russia bears responsibility for the rocket attack on Mariupol. The attack killed thirty people.

In this context, Alexis Tsipras’ expression of “discontent” at not having been consulted may have been justified. “The aforementioned statement was released without the prescribed procedure to obtain consent by the member states and particularly without ensuring the consent of Greece” the Greek government noted. “It is underlined that Greece does not consent to this statement”. Whether the oversight was intentional or a mix-up resulting from the transition of power in Greece remains unclear. That the new government of Greece will exert pressure in order to realign EU policies towards Russia should not however be in doubt.

What is more, EU pressure contributed to the failure in the privatisation process of one of Greece’s state-owned energy companies to a Russian-backed consortium. Subsequent criticism to the effect that Greece is not privatising assets at sufficient speed have sounded hollow as a result. EU sanctions on Russia are thus directly affecting some of the few dynamic segments of the Greek economy and have contributed, albeit indirectly, to SYRIZA’s victory in these elections.

The phenomenon of Syriza has captured the hearts and minds of European intellectuals. For many informed observers Greece is the prelude of tectonic changes that would shape future European politics, as there is a wave of elections in in 2015 countries facing similar challenges, including Portugal and Spain. The rising popularity of the Spanish ‘Podemos’ movement makes it plausible to see another party of the radical left gaining electoral support in the aftermath of the Eurozone crisis.

addressed the audience together promising ‘Syriza, Podemos, Venceremos’ (literally “Syriza, we can, we’ll win”).  So, should we expect a ‘spill-over’ of governing radical left parties in Europe or is, this, another Greek exceptionalism?

The tight external conditionality attached to the bailout is coupled with a limited timeframe within which crucial decisions need to be taken.

Hundreds of thousands of demonstrators — whom the world press refer to as los indignados — gathered in the square of Puerta del Sol in Madrid on 15 May 2011, protesting against the banks’ stranglehold on the economy and a democracy they felt no longer represented them. They outlawed flags, insignia and speeches on behalf of organisations and parties, and soon had a slogan: “United, the people do not need parties.”

Podemos’s creation stemmed from the realisation that “15-M [15 May] was locked in a social movement-based conception of politics,” said sociologist Jorge Lago, a member of Podemos’s citizens’ council, part of its wider leadership structure. “The idea that a progressive build-up of strength among the demonstrators would inevitably produce political results proved to be false.” Associations to fight tenant evictions and resistance networks against health sector cuts were established, but the movement ran out of steam and fell apart.

But what should happen when a government that social movements regard as over-timid comes under fire from conservatives? Should they play into their enemy’s hands by joining the criticism, or keep silent, betraying their cause? There is no easy answer to this.

The public consciousness is, at last, aware of the issues of financial regulation, wealth distribution and the means of production. But questions relating to religion regularly push these into the background (1).

Nikos Filis, editor of Avgi, a newspaper with, as main shareholder, the radical left coalition Syriza (2), came to a different conclusion: “The attack may orientate Europe’s future: either towards Le Pen and the far right, or towards a more reasoned approach to the problem. Because security needs cannot be met by the police alone.”

“If Syriza had been less intransigent on standing for the rights of immigrants, we would already have 50% of the votes. But this choice is one of the few points on which we all agree.”

An audit commission, composed of public auditors, economists, lawyers and other specialists, as well as representatives of civil society and organised labour, would look into why public debt was incurred, the terms under which it was contracted, what the borrowed money was spent on and seek to establish who was responsible for problematic debt agreements. "Such an audit would throw up some interesting questions regarding the legality - banks may have been lending in contravention of public debt rules of European debts," Jubilee Debt Campaign director Nick Dearden said.

Odious debt a legal theory that posits that the national debt incurred by a despotic regime for purposes that do not serve the best interests of the nation do not have to be paid back.

Any substantial repudiation of this debt would punch massive holes in the balance sheets of the banks in the core of the Eurozone that performed much of the lending, mainly German and French institutions. Similar effects would be felt by UK banks in the case of Irish lending.

Parts of our economies, societies, and states in Europe are being stripped bare by an extreme form of predatory capitalism.[1] And this stripping can coexist with growth in much of our economies. The majority of workers and economic operations keep functioning, even if at reduced levels.

The unemployed who lose everything—jobs, homes, medical insurance—easily fall off the edge of what is defined as 'the economy' and counted as such. So do small shop and factory owners who lose everything and commit suicide. And so do the weakened and ill newly poor who can no longer access basic medical services. All are stripped from what gets measured as 'the economy.'

The reality at ground level is more akin to an economic version of ‘ethnic cleansing’ in which specific kinds of negatives are dealt with by simply eliminating them from view. Thus in early January 2013, the European Central Bank announced that Greece’s economy was on the path back to growth, and Moody’s upgraded Greek debt by a point; the country’s rating is still low, but such shifts matter to investors, always desperate to find destinations for their capital. It meant that Greece was again becoming safe territory, and largely meant the buying up at very cheap prices of what had been valuable parts of the national economy. We saw a similar process in South Korea and Thailand during the so-called Asian financial crisis.[2] Greece’s 30% of workers who had lost their jobs, countless broken firms and neighbourhoods were left out of the picture. This economic cleansing works, but it does so on the backs of all those who have been expelled.

There is one criticism of austerity politics that is both true and, simultaneously, flatly false: that it is ideological. This claim is ambiguous and needs to be unpacked.

Yet Labour’s cuts, though slower and a little less deep, would in any other circumstances be considered a scandal. During George Osborne’s emergency budget in 2010, the chancellor was able to remark that he had inherited from Labour plans for cuts averaging 19 per cent across all departments. (Osborne had ‘merely’ increased the planned cuts to an average of 25 per cent across all departments). This was why canny Labour right-wingers had urged colleagues to calm down the anti-cuts talk, knowing that a Labour government would implement similar policies.

But those dismissing austerity as ideological mean precisely that there is a purely technical, non-ideological means of crisis-resolution. In this sense, the criticism of austerity as ideological is obviously in bad faith. It simply says, ‘their cuts are stupid, ours are going to be super-clever’.

What is new about this phase of capitalism? Its global interconnectedness, driven in part by new technologies, and the dominance of a new kind of finance capitalism mean that, while a crisis of this system has effects everywhere, these effects are uneven. So far the Bric countries seem relatively unscathed, while the impact of economic devastation has spread from Asia and Africa into Europe.

The breakdown of old forms of social solidarity is accompanied by the dramatic growth of inequality and a widening gap between those who run the system or are well paid as its agents, and the working poor, unemployed, under-employed or unwell.

Neoliberalism's victory has depended on the boldness and ambition of global capital, on its confidence that it can now govern not just the economy but the whole of social life. On the back of a revamped liberal political and economic theory, its champions have constructed a vision and a new common sense that have permeated society. Market forces have begun to model institutional life and press deeply into our private lives, as well as dominating political discourse. They have shaped a popular culture that extols celebrity and success and promotes values of private gain and possessive individualism. They have thoroughly undermined the redistributive egalitarian consensus that underpinned the welfare state, with painful consequences for socially vulnerable groups such as women, old people, the young and ethnic minorities.

In the era of the Enlightenment, during the lifetimes of Francis Bacon, Descartes or even Hegel, in no place of Earth the standard of living was more than twice as high as in its poorest region. Today, the richest country, Qatar, boasts an income per head 428 times higher than the poorest, Zimbabwe. And these are, let’s never forget, comparisons between averages – and so akin to the facetious recipe for the hare-and-horsemeat paté: take one hare and one horse…

As the authors of the quoted article warn, the prime victim of deepening inequality will be democracy – as increasingly scarce, rare and inaccessible paraphernalia of survival and acceptable life become the object of a cut-throat rivalry (and perhaps wars) between the provided-for and the left-unaided needy.

And he adds: “Growing income inequality, though obviously undesirable from a social perspective, doesn’t necessarily matter if everyone is getting richer together. But when most of the rewards of economic progress are going to a comparatively small number of already high income earners, which is what’s been happening in practice, there’s plainly going to be a problem.” [ii]

Under the gold standard, and largely because of the gold standard, the capitalist world endured eight different deflationary slumps severe enough to be called “depressions.” Since the gold standard was abolished, there have been none – and, as we shall see, this is anything but coincidental.

The essential insight of Modern Monetary Theory (or “MMT”) is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.

what had really happened was epoch-making and paradigm-shattering. It was also, for the rest of the 1970s, polymorphously destabilizing. Because no one had a plan for, or knew, what all of this was going to mean for the reserve currency status of the U.S. dollar. Certainly not Richard Nixon, who was by then embroiled in the early stages of the Watergate scandal. But no one else was in charge of this either. In the moment, other countries and their central banks followed Washington’s line. They wanted to forestall any kind of panic too. But, inevitably, as the real consequences of the new monetary regime kicked in, and as unforeseen and unintended knock-on effects began to be felt, this changed.

Will we, then, see a reversal of policy? A sea of mea culpas from politicians who have spent the last few years telling disabled pensioners to give up their bus passes and poor students to forgo college, all on the basis of a mistake? It seems unlikely. After all, as I and many others have long argued, austerity was never really an economic policy: ultimately, it was always about morality.

We are talking about a politics of crime and punishment, sin and atonement.

But in a larger sense, the message was that we were guilty of having dreamed of social security, humane working conditions, pensions, social and economic democracy.

It’s Davos comes to D.C. – academics and investors like Nouriel Roubini holding forth on world megatrends while Bloomberg television and the BBC stage live coverage and marquee interviews. It’s as if the actual governance of the two institutions – the purpose of the whole affair – has become an afterthought.

Outside the public eye, people like Kim, Lagarde and Lew are holding dozens of one-on-one meetings – “speed dating” is how former Treasury official Scott Morris, now an analyst at the Center for Global Development, refers to it. It’s in those sessions that Egypt tries to make progress on a hoped-for IMF loan, or Indonesian minister Mari Pangestu lobbies to become director general of the World Trade Organization, or U.S. officials get private estimates of China’s shale gas reserves.

As the Cyprus crisis was unfolding last week we also got to see the report of the Senate Permanent Subcommittee on Investigations on JP Morgan’s losses at its “London Whale” trading division. The report chronicles a series of bad bets on derivatives that were compounded by traders doubling down their stakes. They concealed the size of their losses both to bank officers and regulators. The end result was a $6 billion loss.

If the big banks are too big to regulate and, according to Attorney General Holder, too big to prosecute, then the only sensible course is to break them up. There have been some promising developments in this area. At the top of the list is Elizabeth Warren’s election to the Senate. Senator Warren has already made it clear that she will use her seat on the Banking Committee to try to hold the banks and bank regulators accountable. The other important development is that Warren seems to have an ally in Louisiana Senator David Vitter.

If there is ever going to be enough political force to break up the big banks it will have to come from this sort of left-right coalition that moves in toward the center.

First, and possibly the most well-known: the attack on organised labour and the resulting drastic reduction in workers’ bargaining power. This occurred not just through the instrument of unemployment (or fear of it) used to discipline workers, but through regulation and legal changes as well as changing institutions. This is now an almost universal feature, except in societies such as in Latin America where recent political changes have generated some reversal.

Second, financial deregulation and significant increases in the lobbying and political power of financial agents. This has led to the massive expansion and then implosion of deregulated finance, with the crisis affecting the real economy in terrible ways. It has also contributed to deindustrialisation and the rentier economy.

Third, the triumph of private gain over social good and the aggressive delegitimisation of public provision. Quite apart from the adverse effects on the long term (in terms of inadequate public investment for the future or for meeting current social needs) this has terrible effects on society, creating not just injustice but small-minded and petty individualism as a dominant social characteristic.

The first is that, beyond a point export-driven growth has a way of running into internally generated constraints.  Second, that among the factors that can undermine a country’s growth prospects, even at relatively higher income levels, is excessive liberalisation, especially financial liberalisation. Possibly most countries, whether poor, rich or in some ‘middle income’ range, find their growth has stalled for reasons such as these.

The IMF’s latest regional outlook on Asia for example suggests that these economies need to pay attention to “institutions” and infrastructure and exploit the “ample room for easing stringent regulations in product and, in some cases, labor markets.” Institutional strength is seen as reflected in higher political stability, better bureaucratic capability, fewer conflicts and less corruption. Whether weakness in this are is the result of underdevelopment or a cause of it is open to discussion.