Category Archives: Austerity
By TANA FRENCH
DUBLIN — FOR the past month, Ireland has been outraged by tapes of Anglo Irish Bank officials, back in 2008, discussing lying to the government about how big a loan they needed, and how they knew there was no chance that the loan would ever be repaid. That loan was the first domino in a sequence that ended with the whole Irish economy flat on its face.
It’s not the bankers’ actions that have outraged people — pretty much everyone had a fair idea that this was what had gone down. It’s the overpowering sense of amorality revealed on the recordings, which were released by the Irish Independent newspaper. The bankers have a great laugh about the situation. It genuinely never seems to mean anything to them that the taxpayer is going to be forced to pay their bills, to the tune of tens of billions. More than that: it never seems to occur to them that their actions might harm people.
I write psychological crime, so I spend a fair amount of time thinking about morality and amorality and what underlies them. And it seems to me that this amorality could be a symptom of something deeper: a total disconnect between action and consequence.
Ireland’s population is just over half that of New York City’s. Our ruling class — including many of the politicians, bankers and property developers who wrecked the economy — is a tiny community, interwoven by friendship, marriages, education, sports and financial transactions to a degree that would be unimaginable in a bigger country. That interweaving has created a safety net that won’t let any of the ruling elite fall. If you’re a banker and your golf buddy’s kid wants to be a banker, then it doesn’t matter if the kid is an idiot, or if he kills cats for kicks: you’ll take him on, and you’ll keep him on.
For many of these people, action and consequence don’t apply; their lives are mapped out from birth, and nothing they do will alter that map. It seems to me that that would be intensely disempowering, even terrifying. Instead of being a series of interlinked actions, life is made up of a scattering of events that have no discernible relationship to one another and that you don’t influence in any real way. In that climate, it would be difficult to develop the sense that your actions make any difference, that you have any responsibility for the consequences. Without cause and effect, there’s no foundation for morality.
I’m not saying this is an excuse. It isn’t. But, like everyone in Ireland, I want answers — for the taxes piled on taxes, for the enormous cuts to essential services, for the dole queues and the flood of emigration, for the desperation in the voices of people who are trapped in ghost estates and don’t have the money to buy their kids shoes. And I wonder if this could be one small facet of one of the answers.
Another question, maybe a more interesting one, is how people who weren’t part of that powerful elite got sucked into the property pyramid scheme that fueled the boom. Some commentators have implied that the answer is basically the same: people got deep into credit-card debt, or took out mortgages for 10 times their income, because they were temporarily sucked into the psychosis of the powerful and it didn’t occur to them that there might be consequences.
But I wonder if, for these people, the truth might actually be the opposite.
Throughout the economic boom, the politicians and bankers and property developers, along with the news media, were telling all of us that cause and effect were perfectly, inextricably linked: “If you buy a vastly overpriced and shoddily built house in the middle of nowhere, the economy will keep growing, and in a few years your house’s value will have doubled, and you can sell it to some other sucker and buy something you actually want and live happily ever after and UTOPIA!!!” It was as simple and certain as sticking a coin into a vending machine: insert Action X, and the life machine will inevitably whir and beep and spit out Future Y.
THE Irish are notoriously cynical, but the Utopia myth hit at exactly the moment when we were most open to unquestioning belief. The majority of Irish people were so desperately poor, for most of the country’s history, that when suddenly we weren’t broke any longer, the cynicism was washed away by the flood of prosperity. We needed to believe that the Celtic Tiger hadn’t simply wandered in, because that would mean it could wander out again. We needed to believe that we had somehow made it happen, and that therefore there were things we could do, like buying overpriced houses, to make it keep happening. We needed, basically, to believe in that chain of action and consequence.
And so the Irish tendency to raise an eyebrow at anything that’s presented as certain paradise dissolved just at the moment when it was needed most.
A lot of my generation believed that chain was unbreakable. When it shattered, so did they — not just financially (although that too), but also psychologically. Their whole sense of a world governed by coherent cause and effect, of their ability to have any agency in their own lives, came under attack.
Those people, the ones who trusted too deeply in action and consequence, were the ones who got utterly, shamelessly destroyed by the people who had no such belief. I’m pretty sure the effects of that betrayal, for Ireland, will take decades to fully unfurl.
Tana French is the author, most recently, of the novel “Broken Harbor.”
Canada has now been governed for some time by conservatives who allegedly care about deficits and debt, yet when the implosion of American banks dragged Canada into a recession, our government started spending far more, not less. Years later, we continue to spend into the red and our debt lurches ever higher. By contrast, even since the ascent of the Conservative Party in London, the U.K. has been biting a fiscal bullet. They have chosen to trim government spending in the hope of jump-starting future economic growth—in a word, austerity. According to Mark Blyth, this is a bad idea: “Austerity doesn’t work. Period.” Believing it only persists due to “epistemic arrogance and ideological insistence,” he sets out to trace the intellectual history of austerity, going back to its roots, from Adam Smith, David Hume and John Locke to more recent proponents like Joseph Schumpeter, Friedrich Hayek and current German leader Angela Merkel. Then Blyth gives us a decidedly discouraging historical tour of austerity in action, which among other things makes us feel sorry for Great Britain’s prospects.
Blyth, a professor at Brown University, is an unusually gifted communicator of complex economic ideas. But though he pens such colloquial sentences—“Iceland, in many ways, was Ireland on crack”—this book is most suitable for readers with at least an intermediate familiarity with macroeconomics. Blyth does not pause long to explain the importance of bond yields. Yet his book provides a rich background for understanding the policy options facing those who would solve the ongoing Euro-crisis. Blyth also revisits the momentous American decision to bail out its banks, which continues to prompt Republican murmurings about the necessity for belt-tightening. Insofar as the United States and Europe have a debt crisis, it is partly the result of a banking crisis. Bank bailouts created much of the debt that we hear so much hyperventilating about. As for puny Iceland, it chose to let its toxic banks go bust, and its economy is now doing rather well.
Blyth is too rigorous to be an ideologue. He thinks austerity measures have their place, but only under the right conditions. Now, apparently, is not such a time.
Kevin O’Rourke links to an interesting paper by Jeff Frankel which discusses different ways recessions are measured. The standard European measurement says that when an economy falls two quarters in a row it is officially in recession (we know all about that given our official double-dip). This measurement has the advantage of being statistically clear and simple. This, though, can lead to false readings. For instance, over two years the economy declines in half of the eight quarters – leaving it much lower. If, though, none of those quarters were consecutive, then according to the European measurement, there was no recession even though output has fallen. This may be an extreme case but it shows how quirky this measurement can be.
The US has a different way of measuring recessions. According to Frankel:
‘In the United States, the arbiter of when recessions begin and end is the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). The NBER Committee does not use that rule of thumb (Europe’s two consecutive quarters of decline), nor any other quantifiable rule . . . When it makes its judgments it looks beyond the most recently reported GDP numbers to include also employment and a variety other indicators, in part because output measures are subject to errors and revisions. The Committee sees nothing special in the criterion of two consecutive quarters.’
The problem with this approach is that there is no single definitive measurement so disputes easily arise.
I’d like to introduce another way to measure a recession. It is based on the sinking-ship metaphor. A ship starts sinking. It eventually stops and starts to rise again. While it’s rising back to the surface we can say that it is in recovery mode. However, it will remain below water until it gets back to the surface.
Similarly with an economy: an economy goes into decline, eventually stops falling and starts rising. However, it remains metaphorically below water until it returns to the point at which it had started sinking. If an economy is below its pre-recession levels it remains ‘recessed’.
Take, for instance, the US Great Depression in the 1930s. The economy tanked big time in 1929. However, by 1935 the economy had experienced nearly three years of rising GDP, employment, consumer spending and investment. However, no one then (or now) would have said that the Great Depression was over by 1935 – it was still well below its 1929 level.
In 2007, the economy was generating a little over €43,000 for every woman, man and child. As seen, according to the IMF projections, even by 2018 the economy will not have returned to the 2007 level. It won’t happen until 2019. In other words, the economy will remain under-water for 11 years – in other words, ‘recessed’.
Of course, this is GDP – which is flattered by multi-national accounting practices (profit-tourism, etc.). What does it look like when we measure GNP per capita? Here we use the Government’s own assumptions in their end-of-the-decade scenario.
When looking at this domestic measurement (with all its faults) we find that the economy will be underwater for 14 years. 14 years. We won’t find ourselves above pre-recession levels until 2022. And if that’s not depressing enough, the ESRI’s John Fitzgerald estimates that even our GNP figures are over-stated given the presence of re-domiciled multi-nationals. The real GNP figures are substantially lower which suggests that a return to the surface could take even longer based on projected trends.
Staying with the metaphor, when the ship returns to the surface what kind of shape will it be in? Even though the economy has returned to the surface, many people will still be underwater. The Government’s end-of-the-decade scenario projects double-digit unemployment by 2019. Average real wages may not return to pre-recession levels until 2020 and even later. How many will still be living in deprivation, how many in poverty, how many will have emigrated? The ship may be back on the surface, hundreds of thousands won’t be.
To give another idea of what we’re facing into, let’s use the Government’s assumptions to track the ‘jobs recession’.
We won’t return to pre-crisis levels of employment until 2024. That’s 16 years under-water.
So when we start growing again – GDP, domestic demand, employment – just remember: we will have to grow for a long-time just to get back to where everything started collapsing. In other words, the ship may start rising soon but we will be underwater for a very long time.
Hopefully, you can hold your breath.
By Michael Taft,
The time is ripe—if not for the full-blown revolution, then at least for a transformative backlash to recenter the imperatives of social justice that have lately become so attenuated.
ZAGREB, CROATIA—What is often described in media, political and financial circles as the global “debt crisis” actually poses even more insidiously widespread dangers than the ubiquitous doom-filled reports commonly inform. “The greatest catastrophe threatening Greece and Europe is not the economic crisis,” says Costas Douzinas, professor of law at Birkbeck, University of London, “but the total destruction of the social bond, the way we see ourselves, the way we see our relation to the community. This is long-term. Economic crisis, fiscal deficits, can be restored in the medium term. But once you lose the social ethos, then there is no way back.”
That was the takeaway in May as scholars, writers, politicians and activists came together at Zagreb’s sixth annual Subversive Forum to plumb the depths of the current malaise, but also to propose remedies for the five years of European economic upheaval that has produced personal hardship, civic unrest, governmental instability and a general sense of paralysis.
For two weeks every year, Zagreb’s civic festival welcomes hordes of progressive lecturers and audiences to a program of films, debates, roundtable discussions and protest-planning sessions. Running past midnight in the city’s elegant 1920-vintage movie house Kino Europa, standing-room-only keynote speeches attract staunch partisans for advancing the interests of the public sphere against the authoritarian mediocracy that now prevails.
The cataclysm of human and social devastation in Europe is this generation’s defining moment. But calling it a debt crisis, as Greek economist Yanis Varoufakis explains, is like going to the hospital with advanced inoperable cancer and having the doctor diagnose your suffering as a pain crisis.
Yes there is pain, but the pain is symptomatic of bigger problems. The “debt crisis” is also a food crisis—people can’t afford to buy enough to eat. It’s a housing crisis, an education crisis, an unemployment crisis, an immigration crisis, a human rights crisis. In Greece, the New York Times reports, prostitution has surged 150 percent in the last two years as a direct result of social desperation, with supply-and-demand dynamics driving prices for sex work as low as five euros.
The Left rightly rejects austerity, despising it as collective punishment of citizens who had nothing to do with the financial collapse. Public health scholars David Stuckler and Sanjay Basu explain in The Body Economic: Why Austerity Kills that such spending cuts drastically lower life expectancy due to a higher prevalence of suicide, HIV, alcoholism, heart disease and depression.
Underlying all these other crises is the steady transformation of the over-bureaucratized European Union into a democracy-free zone. Voter turnout is in decline (especially for European Parliament elections, but also in national contests), as constituencies manifest apathy or disenfranchisement. Decisions that people should be able to make for themselves and that are consequential for their lives—how much society spends on healthcare, on education, on defense—emanate instead from afar by EU administrators. A “Merkiavellian” regime, some call it; a secular empire of finance.
The principles of democratic self-determination are hamstrung by the powerful Troika—the International Monetary Fund, the European Central Bank and the European Commission (the EU’s legislative and operational council)—which a disempowered citizenry increasingly views as an automaton that squelches democracy as it protects the interests of the power elite.
A teachable moment
But as many Europeans grow resigned to the “new normal,” a passionate movement of social democrats and subversive activists aims to recast a fatalistic narrative of inevitable capitulation. From the rubble of this financial catastrophe, they are extrapolating a systemic critique of how this mess came to pass and more importantly, how to use the collapse as a teachable moment. The time is ripe—if not for the full-blown revolution, then at least for a transformative backlash to recenter the imperatives of social justice that have lately become so attenuated.
The EU had been promoted as a strong “single market” (by many reckonings, the world’s largest economy) that would defuse Europe’s centuries of conflict: shared economic prosperity would generate cooperative unity. But clearly the EU has not delivered the promised transnational harmony. Capitalism is, after all, inherently a competition, which means there are winners and losers. Labor, always a weak player in this competition, loses the most in a race to attract foreign investment. Consequently, the labor movement fears a descent into what Slavoj Žižek calls a tyrannical “capitalism with Asian values.”
“Peripheral countries,” a label that has become so prevalent in the EU discourse, typifies the fault lines in the “union.” At the Subversive Forum, I noticed how keenly language highlights these tensions and fissures. Not surprisingly, people don’t like being thought of as peripheral—a lesson that might have been learned in light of the offense that the “third world” has always felt about that similarly condescending term. They also don’t appreciate being called PIIGS, the acronym that lumps together Portugal, Ireland, Italy, Greece and Spain (the extra “i” doesn’t soften the blow). The term is outdated anyhow as more countries slide into severe downturns. With France and the United Kingdom falling into recession and Cyprus imploding, we can expect even coarser acronyms in the future.
It’s not just about nomenclature. The discourse of “othering” reveals old and supposedly effaced neocolonialist prejudices at their worst. In the minds of those who oppose humane terms of support, the “pigs” are lazy and corrupt, unsophisticated and out of date. They have brought their troubles on themselves and forced austerity will do them good.
The idea of Europe and even the word itself, has become toxic, unstable; co-opted by the bureaucrats’ failed vision, nobody knows exactly what it means. Is the UK in Europe? What about other EU but non-Eurozone countries—like Poland or Sweden? Is Iceland, the canary in the coal mine for financial meltdown, European? Euro-Asiatic hybrids such as Russia and Turkey? Non-EU countries like Norway and Switzerland? Can a country be expelled from Europe?
“Europe” is uttered with a sneer or a spasm of abjection. “Euro,” which once denoted simply a strong cosmopolitan currency, is now a root that has spawned a more cynical vocabulary: Eurocritic, Euroskeptic, Europhobe. But if the establishment’s lexicon is becoming degraded, the radical retorts are more fiercely honed. “Union” and “unity” have been exposed as feckless in the face of European inability to sustain these, inspiring a more rousing synonym, “solidarity,” that resounds among those who are focused on social equality rather than financial technicalities. Paradoxically, the counter-rhetoric of the Left has expanded the context of the crisis by contracting the terminology. What was originally construed as “the global economic crisis” morphed into “the Eurozone crisis,” or “the Eurocrisis,” then became more tightly compressed into “the crisis,” and finally—stripping away everything else to convey simply a primordial vortex of personal agony and social decrepitude—the definite article dropped off, leaving just “crisis.”
“Crisis” has mobilized a radical critique of European capitalism. It’s not as simple as debating whether countries should leave the EU, or the euro—as bad as things are now, the alternative is probably catastrophic. But the Left has embarked upon a deep analysis of what sort of society has grown out of the EU’s financial autocracy. “Criminals, disguised as statesmen, were robbing us blind,” says Slovenian poet and critic Aleš Debeljak. “Crisis made us realize this truth.”
The radical mission is to uncover and expose the roots of this incompetence and institutional corruption, to question the motives and hidden agendas lurking beneath the “bankruptocracy” (another salient coinage), to educate and motivate suffering masses, and to reform the system.
“We can’t leave economic issues to the experts any longer,” says Maja Breznik, from the Slovenian Peace Institute. “It’s time for amateur investigations.”
These investigations, an end-run around the self-interested strategies of bankers and other EU cronies, begin from the premise that the vicious circle of debt is not the fault of immoderate spending by governments or households. Instead the primary goal of “recovery” has been a non sequitur: protecting the interests of private moneylenders and multinationals and refilling their coffers after their financial miscalculations and chicanery. The problem as it is being addressed bears little relation to the actual predicament, so society has plunged into deep recession.
As Europe tries to emerge from crisis, an exclusive focus on debt represents a class struggle designed by financiers to transfer losses from their books on to the taxpayers. Troubled countries are forced to sell off their economies to foreign investors. The Troika arranges bailouts under the harshest terms, with the heaviest burdens borne by agencies that support public welfare, because reducing social spending allows countries to pay more money, more quickly, back to the banks.
Privatization of the commons en- sues: everything that can be liquidated is sold, then rented back to the most disempowered classes. Much of the population is perpetually indebted and the idea of “permanent work” becomes a rarity, replaced by piece-work, part-time work and frequent lay-offs. The social contract has been broken.
We “amateur investigators” must ask questions about real value, as opposed to the merely monetary expressions of value that the Troika fetishizes. It seems reasonable to proclaim “bankrupt” (figuratively and literally) the discourse of valuation that culminated in the exotic, abstruse financial products that precipitated the crash.
It is our turn to open the discussion of what is valued from the perspective of the victims of fiscal malfeasance. (By “us” I refer to non-bankers, non-wealthy, non-functionaries and for good measure a healthy cadré of academic fellow travelers.) GDP itself is a subjective measure of value, a war-accounting mechanism that is not the only way to count. A euro is not just a euro: not every use of money is equally valuable. A different model of social accounting—one that focuses on the bottom, the workers, the poor and middle class, and starts with wages, taxes, social security—will produce a very different economic narrative than the one that has predominated for the last five years.
“We demand a new right,” argues Franco “Bifo” Berardi, a Marxist scholar from Milan’s Academy of Fine Arts, “The right to insolvency. We are not going to pay the tax. If I am insolvent, I don’t have money, so I won’t pay the debt.” Instead, there should be a moratorium on interest payments, some debt should be canceled and some repaid with a growth clause (as Germany did in the 1950s). Countries would pay as they grow, and as they can afford it.
Žižek—the Subversive Forum’s patron saint since its inception—warns that the radical Left has historically had a proclivity to sit on the sidelines: “They prefer sometimes not to take power so that when everything goes wrong they can write their books explaining in detail why everything had to go wrong. There is some deeply rooted masochism of the radical Left. Their best books are usually very convincing stories of failure.”
But today there is an especially high onus to take action, to engage in political reform. Leftist activists and politicians do have a concrete agenda for fixing the crisis. In Greece, defying the eulogies of democracy, Alexis Tsipras’ Syriza coalition has shown impressive strength in the last few elections and stands within grasp of parliamentary victory and a majority coalition in the near future. Nearly destroyed by crisis, Greece may soon emerge as the most advanced site of resistance. “The future of Greece is the future of Europe,” Tsipras proclaims, providing a heartening reverberation for the slogan that protestors chant across the continent, “Nous sommes tous des grecs”: We are all Greeks.
The Left’s challenge is to reorganize in a more cooperative, collective way: reclaiming the commons, reappropriating the wealth that is now in the hands of the state and the banks, and reconstituting the social fabric that was destroyed by economic restructuring.
Political platforms like Syriza’s draw on a wealth of theoretical foundations and strategic visions for reform.
Erik Wright, a University of Wisconsin sociologist who wrote Envisioning Real Utopias, is one of many academic subversives who offered Zagreb audiences a sophisticated array of fresh ideas for transcending the status quo of capitalism and replacing it with an emancipatory alternative, a democratic egalitarian pathway that empowers people to take control of their own destinies. Wright described a range of innovations that can be introduced “inside of capitalism” but that embody non-capitalistic principles and more fully reflect the values of democracy: worker-owned cooperatives, participatory budgeting (where citizens help determine civic priorities), freely provided public services like transportation and libraries (which we can think of as anti-capitalist ways to give people mobility and books), and unobstructed access to the commons of intellectual property. Peer-to-peer collaborations like Wikipedia illustrate how a non-capitalist means of production can flourish within capitalism and ultimately displace capitalism altogether (as evidenced by the recent demise of the print edition of that imperialist icon, the Encyclopedia Britannica).
Urban farms organized through community land trusts can support food production divorced from agribusiness. Crowd-sourcing finance like Kickstarter sidesteps the entrenched hegemonies of cultural production. The gift economy in music from the Internet allows people to download songs for free and pay whatever they want. (Wright believes these musicians actually make more income than they would in a conventional sales model because they have created a more palatable moral economy with their fans.)
The crisis of capitalism offers, as a silver lining, the opportunity for us to reconceptualize more democratic and sustainable systems of social and commercial existence. It’s a moment that is uniquely receptive to new ideas, as the old ones have proven so worthless. A subversive smorgasbord can be created in the world as it is, prefiguring things that might be in the world as it could become. Are these just utopian fantasies? A questioner at Wright’s lecture asked whether a smattering of such small-scale interventions could really inspire fundamental social change, to which the sociologist responded sublimely: “We don’t know for sure. The day before Wikipedia was invented, it was impossible.”
ABOUT THIS AUTHOR
Dr. Randy Malamud is regents’ professor and chair of the department of English at Georgia State University. He is the author of eight books, including Reading Zoos: Representations of Animals and Captivity (NYU Press, 1998) and An Introduction to Animals and Visual Culture (Palgrave Macmillan, 2012). He can be reached at rmalamudgsuedu.
The current global crisis is a manifestation of a fundamental problem in the process of the accumulation of capital. The problem is the lack of surplus value production. This contradiction has been concealed by decades of accumulating debt. Burgeoning financialisation involving bull runs since the 1980s have helped disguise the long-term weakening of the advanced capitalist economies. Economic performance in the United States, Western Europe and Japan has deteriorated since about 1973. The years since the start of the current cycle, which originated in 2001, have been worst of all.
The declining economic dynamism of the advanced capitalist world is rooted in a major sustained fall in profitability, caused primarily by the secular over-accumulation of capital. This problem goes back to the early 1970s. By 2000 in the United States, Japan and Germany, the rate of profit of private industrial capital had yet to make a comeback, rising no higher than that of the 1970s. With reduced profitability, capitalists had smaller surplus value to add to their labour processes. The perpetuation of reduced profitability since the 1970s has led to a steady falloff in accelerated capital accumulation across the advanced capitalist economies. The economic interventionism of the capitalist state have obstructed the realisation of the conditions for the necessary radical devalorisation of capital. Consequently economic downturn has not been precipitous enough to bring about a full recovery involving a restoration of profitability. The outcome is sustained stagnation.
To counter this persistent stagnation states, led by the United States, have been forced to underwrite ever greater volumes of debt through ever more varied and exotic financial forms. Initially, during the 1970s and 1980s, states were obliged to incur ever larger public deficits to sustain growth. But while provisionally keeping the economy relatively stable these deficits also rendered it increasingly stagnant. They thereby promoted the continued stagnation of capital by preventing capital proceeding through its “natural” cycle involving sharp downturns. This interventionism obstructed the return of accelerated capital accumulation. The state is now securing progressively less growth for any given increase in borrowing.
States, in the early 1990s, sought to overcome the problem by a budget balancing policy. Deficit reductions brought about by budget balancing resulted in a significant fall in aggregate demand. Consequently during the first half of the 1990s both Europe and Japan experienced devastating recessions that turned out to be the worst of the post-war period. The U.S. economy, itself, experienced the so-called jobless recovery.
Since the middle 1990s, the United States has been obliged to resort to more powerful and risky forms of stimulus to counter the tendency to stagnation. This is why public deficits were replaced with private deficits and asset inflation. In the great stock market run-up of the 1990s wealth on paper, fictitious capital, massively expanded. This development entailed a record-breaking borrowing increases. Consequently a powerful expansion of financial capital and consumption was sustained.
Government financial policy together with the general neo-liberal agenda of the bourgeoisie led to the historic equity price bubble of the years 1995-2000. Equity prices rose as a response to the law of the tendency of the general rate of profit to fall. New investment, free from significant technical composition of capital increases, exacerbated the prevailing over-accumulation of industrial capital. This was followed by the stock market crash and recession of 2000-2001.This development depressed profitability in the non-financial sector to its lowest level since 1980.
Greenspan countered the new cyclical downturn with another round in the inflation of asset prices. By reducing real short-term interest rates to zero for three years, he facilitated an historically unprecedented explosion of household borrowing. This contributed to and fed on rocketing house prices and household wealth. The world housing bubble between 2000 and 2005 was one of the biggest of all time. It made possible a steady rise in consumer spending and residential investment which together drove the expansion. Bush’s budget deficits together with record household deficits succeeded in obscuring the weakness of the underlying economic recovery by creating the appearance of sustained economic prosperity. The rise in debt-fuelled consumer demand as well as super-cheap credit superficially and provisionally revived the American economy. It also led to a new surge in imports and the increase of the balance of payments deficit to record levels.
Simultaneously, instead of increasing investment, productiveness and employment to increase surplus value, individual capitals sought to exploit the hyper-low cost of borrowing to improve their own and their shareholders’ position by way of financial manipulation — paying off their debts, paying out dividends, and buying their own stocks to drive up their value. This financialisation created a fictitious prosperity The same sort of things had been happening throughout the world economy — in Europe and Japan. In the United States and across the advanced capitalist world since 2000, the contradiction has been as follows: The slowest growth in the “real economy” since the 1970s and the greatest expansion of the fictitious economy in U.S. history.
Just as the stock market bubble of the 1990s eventually burst, the housing bubble eventually deflated. As a consequence, the house-driven expansion during the cyclical upturn moved into reverse. Just as the positive wealth effect of the housing bubble drove the economy forward, the negative effect of the housing crash drove it backward. With the value of their household residences declining and household borrowing collapsing households were forced to consume less. The sub-prime crisis arose as a direct extension of the housing bubble. Because of the ensuing enormity of the banks’ losses credit froze up at the very moment of the slide into recession.
It is clear from the above argument that it does not necessarily follow, as held by much of the Irish Left, that stimulus provided by the capitalist state to the domestic economy is not a prescription for providing a way out of recession. Indeed the argument above teaches the lesson that “artificial stimulus” can constitute a factor that sustains or encourages recession. Most of the Irish Left, including the less passive trade union UNITE, focus its efforts on campaigning for a solution within the framework of capitalism through the medium of the capitalist state which they misidentify as an eternal nanny state. They thereby sustain the illusion that capitalism is potentially a system that can serve the interests of the working class. If this utopianism of the Left were true then there would be no need for communist society.
The Euro crisis is a general a product of the conditions that contributed to the Great Recession. After the crash of 2008 the contradictions of the Euro grew increasingly visible. Consequently the market increasingly discovered its shortcomings. This manifested itself in the growing economic and financial problems of the so called peripheral states within the Euro zone. States such as Greece, Portugal and Ireland. These economies were running growing budget deficits. This meant that they were compelled to increasingly borrow on the financial markets. But because of the worsening economic conditions under which they were forced to do this, together with other factors, the interest rates at which borrowing was possible for them became increasingly usurious. No longer were they really in a position to borrow on the bond market. This meant they were left with merely two options: a bailout from the EU or default. In this way the economic crisis for these states became a growing problem for the EU itself culminating in a collapse of the Euro and its banking system.
One thing needs to be made clear. The Irish economy did not collapse because of irresponsibility regulation, banking and unscrupulous bankers. Pinning the blame on the aforementioned is a form of populism that distracts the attention of the working class from the real problem –the contradictory limits of capitalism. It is because the generation of surplus value within the reproduction process was the central problem facing the Irish economy that the bubble was created involving vast amounts of debt. To compensate for the absence of economic growth based on profitable industrial production bubble conditions were created that inevitable burst.
The banks of the core Euro zone were bloated and sitting on mountains of toxic debt collected from its periphery and elsewhere (the United States included). Consequently the core was vulnerable to collapse too. Because the core members were not prepared to let their banks collapse they imposed draconian conditions on the states that received financial help from them. This forms part of an attempt to protect its banks by rescuing funds from the periphery that was owed to the core of the European banking system. But the real aim of the markets was not merely to force the peripheral states into default. The underlying aim was to collapse of the Euro itself thereby bringing about the reconfiguration of the European capitalist system.
Ultimately the source of the Euro crisis is not, as some argue, its flawed architecture, rampant financialisation nor the Great Recession itself. Nor was the Euro crisis itself due to reckless spending by both the public and private sectors of Greece, Portugal and Ireland.
These latter factors and the Euro crisis are the result of the failure of the valorisation process to produce surplus value on a scale sufficient to provide accelerated accumulation of capital. Because of this failure capitalism has been compelled to conduct itself in a way that has led to massive financialisation involving copious credit culminating in financial crisis, crash and economic recession. Debt is not indefinitely sustainable when there obtains abject failure by the system to produce surplus value (profit) on a sufficiently large scale. As I have indicated before, the failure of capitalism to bring about an adequate restoration of profit during the 1974/75 crisis marked a turning point that resulted in the sustained stagnation of capital. The 74/75 dip was not sufficiently deep to overcome the crisis of capitalism. Consequently even if the ECB was to currently dish out mountains of Euro the problem would only partially sort itself out in the short term. In the long term it would lead to a much more acute problem.
Public nor private debt is not the problem. Public/private debt is a product of the problem of profitability. Because of the lack of profitability debt has ballooned thereby reinforcing the problem. For capitalism to economically recover a very deep depression involving massive reductions in the value of wages and social welfare spending is a necessity. The only other (authentic) option is communist revolution.
Passing steeper taxes on the rich isn’t as hard as you’d think.
BY FRED GLASS
Demographic changes favoring a clear progressive message, coupled with the Occupy movement’s lasting insight that the 1 percent are robbing the rest of us blind, provide the opening to beat back the core conservative idea: that the problem is government and society should seek help from the wisdom of the rich.
“There is no alternative to austerity,” insist the rich, along with their politicians, foundations, think tanks and media.
They’ve been saying it for decades, along with, “taxes are bad,” “government doesn’t work” and “public employees are greedy.”
Consequently, common wisdom had it that “you can’t raise taxes.” Even people who should have known better believed this, while the public sector slid down the tubes.
So how did Proposition 30 succeed? This measure, passed by California voters last November, raises $6 billion a year for schools and services—and in a supposedly “anti-tax” state. The money comes mostly through an income tax hike on rich people, along with a tiny sales tax increase of 0.25 percent.
The story should be better known, because with the right preparation, you could make it happen in your state, too.
Testing the waters
Shortly after Democrat Jerry Brown was elected governor in November 2010, the California Federation of Teachers (CFT) pulled together labor and community groups to craft a ballot measure to raise the revenue needed to keep schools and services afloat. (Full disclosure: I am the CFT’s communications director.)
For two years we had been laying the groundwork for a progressive tax: creating educational materials, publishing opinion pieces, holding training sessions with our members and other unionists, and talking with potential coalition partners.
We funded polls and focus groups, testing how likely various types of taxes would be to gain a majority.
Regressive taxes—like sales taxes and across-the-board income tax hikes—were viewed unfavorably. By spring 2011, people felt ordinary folks had already sacrificed enough, in the worst recession since the 1930s.
The public believed, however, that the rich and large corporations needed to pay their fair share for the common good. They were quite willing to vote for higher taxes on the rich.
As we refined our research, we decided on three principles: bring in the most revenue possible; draw it from those who could most afford to pay; and have the best chance of winning. We arrived at a Millionaires Tax: people who made a million dollars a year would pay an extra 3 percent, and people making $2 million an extra 5 percent, raising $5 billion a year.
Unfortunately, Governor Brown had his own proposal that didn’t follow those principles—it included both a half-cent sales tax hike and an across-the-board income tax increase. People were out gathering signatures for Brown’s initiative, our Millionaires Tax, and a third tax measure sponsored by a wealthy liberal attorney.
The Millionaires Tax ran ahead of the other measures in five straight polls.
In early March 2012, the CFT helped organize a march in the capital against budget cuts and college tuition increases. Thousands of students, faculty, and others paraded Millionaires Tax signs outside the governor’s window.
Two days later, responding to the governor’s charge that three competing measures would all lose, we released the results of a poll testing that idea. It found the others would get less than 50 percent, and the Millionaires Tax would win handily.
At that point the governor called in CFT President Joshua Pechthalt to talk. We compromised and combined the two proposals into Prop 30. The new measure raised the top tax rates on income of $250,000 by 1 percent, on $300,000 by 2 percent, and on $500,000 by 3 percent. We had wanted a permanent tax; Brown’s was for five years. The compromise extended that to seven.
We knew the sales tax was a poison pill and we requested that Brown drop it entirely, but he explained that, to keep the Chamber of Commerce neutral, he had promised not to “demonize the rich,” meaning there had to be a “shared sacrifice” component. He did agree to reduce it to a quarter cent.
Sales tax confusion
Our research was validated during the campaign—people don’t like regressive taxes like the sales tax. Millions of dollars in opposition ads did their best to confuse the voters, calling Prop 30 “a massive tax increase on everyone.”
CFT’s coalition, Reclaiming California’s Future, included the Alliance of Californians for Community Empowerment (which emerged after ACORN’s demise), the Courage Campaign and California Calls, a coalition of community groups dedicated to reforming the tax system through voter education and expanding the electorate.
Our coalition emphasized the “tax the rich” message in our literature, public events and door-to-door canvassing, but we were only part of a much broader Prop 30 coalition. The official campaign’s TV ads included asking the wealthy to pay their fair share, but as one message buried among others.
The polling numbers gradually sank to a bare 50 percent. One poll, three weeks before the election, had Yes on Prop 30 at just 48 percent, while the Nos had crept up to 44 percent.
The governor campaigned mostly on the idea that Prop 30 would save education from further cuts, but threw in “shared sacrifice” and “paying down the state’s wall of debt” in his public pronouncements.
We agreed with the education message, disagreed with the others, and insisted on a strong emphasis on taxing the rich. We stressed to the governor that, in order to neutralize the opposition’s ads, the public had to understand what services the tax paid for, who it taxed, and by how much.
In the final weeks, as the governor worked with CFT and other allies in rallies and media appearances, his message became clearer and more consistent: Prop 30 would stop cuts to schools and was fair, because, he said (drawing on his Jesuit background and citing St. Luke), it asked “those who are blessed with the most wealth to give back a little bit so everyone could benefit.”
Ninety percent of Prop 30’s revenues would come from taxing the wealthy; and the quarter-cent sales tax, he said, amounted to a “mere penny on a $4 sandwich.”
On Election Day, Prop 30 won 55 percent to 45 percent, reshaping the decades-old understanding of California as an “anti-tax” state. It is the single largest progressive tax passed in the state since World War II, both in the amount of revenue raised and as a percent bump on the income taxes of the wealthy.
What are some lessons from this tremendous victory?
If the word can be gotten out effectively, the electorate is ready to pass progressive taxes to pay for common needs like schools and services.
Demographic changes favoring a clear progressive message, coupled with the Occupy movement’s lasting insight that the 1 percent are robbing the rest of us blind, provide the opening to beat back the core conservative idea: that the problem is government and society should seek help from the wisdom of the rich.
Prop 30’s message was that public education is the foundation of a decent society and we can restore that promise if the rich pay their fair share of taxes.
The anti-Prop 30 messages were the same as always—government can’t do anything right; the rich will leave California if we tax them; taxes are too high; if we remove the waste, fraud, and abuse in government there will be plenty of money for schools.
But these ideas, so effective in the past, had lost their potency, because, especially post-Occupy, the public understands that economic inequality is growing.
Spending tens of millions of dollars didn’t work for the rich this time. In fact, it backfired—they proved our point. We didn’t have to “demonize” the rich; they did it themselves.
Another key, of course, was the old-fashioned work of reaching out to core constituencies. The Reclaiming coalition was crucial, along with a ground campaign by the broader labor movement, which was heavily mobilized to fight an anti-union measure on the ballot (which lost).
Volunteers and staff spent countless hours knocking on doors, phonebanking, rallying, educating. We reached out systematically to less-likely voters—young people, college students, immigrants, lower-income communities of color—and convinced them to come out to vote for their own futures.
Credit for this orientation is due especially to California Calls, which has targeted less-likely voters and stayed in touch over several election cycles.
This year California has begun to restore funds for public education for the first time in years. There is an alternative to austerity; its name is “progressive taxes.”
Reprinted with permission from Labor Notes.
ABOUT THIS AUTHOR
Fred Glass is communications director for the California Federation of Teachers
Member countries of the European Association of Hospital Pharmacists (EAHP) have issued a jointly agreed statement expressing apprehension about the impact of public spending austerity on services to patients in hospitals.
Amongst the negative impacts of public spending austerity causing concern to hospital pharmacists are: increasing expectancy placed upon patients to meet the up-front costs of their medicines; the unintended impacts national cost-cutting measures are having in respect of medicines shortage; short-staffing in hospitals; diminished opportunities for healthcare professional training and development; and shrinking investment in areas of patient safety enhancement.
EAHP’s members have called for a European Commission review into the potential for greater joint level cooperation between governments in terms of reducing the detrimental health impacts of austerity measures. Such a review could be conducted in the context of both the pan-European aspects of these problems, and the remit of the European Union to take action in the area of public health, as per article 168 of the Treaty on the Functioning of the European Union.
Speaking about the new policy statement, EAHP president Dr Roberto Frontini said, “Hospital pharmacists, by the nature of our profession, are highly attuned to detecting patient safety threats. So with the impacts of public spending squeezes now keenly felt in almost all European countries, we call for greater caution, care and compassion by policy-makers when it comes to the area of health. Too much progress has been achieved in previous decades to be casually discarded in a rush to resolve macro-economic challenges. Sober analysis must made of the patient safety implications of all decisions, as well as the impacts on sustainable health services.”
Dr Frontini further added, “I see significant potential value that could be delivered by the European Commission taking a proactive role in helping member states navigate the current financial challenges to health systems. Ultimately, we all have a duty to ensure that it is not the sick and vulnerable that pays the price of austerity.”
EAHP is an association of national organisations representing hospital pharmacists at European and international levels.
Like plague in the 14th century, the scourge of debt has gradually migrated from South to North. Our 21st-century Yersinia pestis isn’t spread by flea-infested rats but by deadly, ideology-infested neoliberal fundamentalists. Once they had names like Thatcher or Reagan; now they sound more like Merkel or Barroso; but the message, the mentality and the medicine are basically the same. The devastation caused by the two plagues is also similar – no doubt fewer debt-related deaths in Europe today than in Africa three decades ago, but probably more permanent harm done to once-thriving European economies.
Faithful – and older – New Internationalist readers will recall the dread phrase ‘structural adjustment’. ‘Adjustment’ was the innocent-sounding term for the package of economic nostrums imposed by wealthy Northern creditor countries on the less-developed ones in what we then called the ‘Third World’. A great many of these countries had borrowed too much for too many unproductive purposes. Sometimes the leadership simply placed the loans in their private accounts (think Mobutu or Marcos) and put their countries in hock. Paying back in pesos, reals, cedis or other funny money was unacceptable: the creditors wanted dollars, pounds, deutschmarks…
Anti-austerity protests in Spain
Furthermore, the Southerners had contracted their loans at variable interest rates, initially low but astronomical from 1981 when the Federal Reserve declared an end to the era of cheap money. When countries such as Mexico threatened default, panicked creditor-country treasury ministers, top bankers and international bureaucrats spent some sleepless weekends eating take-out and cobbling together emergency plans.
Plus ça change, plus c’est la même chose.* Decades later, serial crisis meetings still take place, this time in Brussels and, with minor variations, the response is identical: you only get a bailout in exchange for committing to a set of stringent requirements. These once echoed the neoliberal ‘Washington Consensus’; now they are more truthfully labelled ‘austerity packages’ but demand the same measures. Sign here, please, in blood.
For the South, the contracts said: ‘Cut back food production and grow cash-earning crops. Privatize your State enterprises and open up profit-making activities to foreign transnational corporations, especially in raw materials and extractive industries, forestry and fisheries. Drastically limit credit, cancel subsidies and social benefits. Make health and education paying propositions. Economize and earn hard currency through trade. Your prime responsibility is to your creditors, not your people.’
Now it’s Europe’s turn. The countries of southern Europe, plus Ireland, are relentlessly told: ‘You have been living beyond your means. Now pay.’ Governments meekly accept orders and their people often assume that their debt must be paid instantly because the debt of a sovereign State is just like the debt of a family. It’s not – a government accumulates debt by issuing bonds on financial markets. These bonds are bought mostly by institutional investors such as banks which receive an annual interest payment, low when the risk of default is low, higher when it isn’t. It’s absolutely normal, desirable and even necessary for a country to have a debt which will pose zero problems and generate many benefits if the money is prudently invested for the longer term in productive activities such as education, health, social benefits, solid infrastructure and the like.
Indeed, the higher the proportion of public spending in a government budget, the higher the standard of living and the more jobs are created – including private-sector jobs. This rule has been verified time and again since the correlation between public investment and national well-being was first noted in the late 19th century.
Obviously, borrowed money can also be wasted and spent stupidly and benefits can be distributed unfairly. The big family-State budget difference is that States don’t disappear like bankrupt companies. Productive, well-managed investment financed by government borrowing should be seen on the whole as A Good Thing.
The magic numbers
In 1992, European countries narrowly voted Yes to the Maastricht Treaty, which at the insistence of Germany contained two magic numbers, 3 and 60. Never allow a budget deficit greater than three per cent; never contract public debt greater than 60 per cent of your Gross Domestic Product (GDP).** Why not two or four per cent, 55 or 65 per cent? Nobody knows, except perhaps some ancient bureaucrats who were there, but these numbers have become the Law and the Prophets.
In 2010, two famous economists announced that beyond 90 per cent of GDP, debt would plunge a country into trouble and its GDP would contract. That sounds logical because interest payments would take a bigger chunk out of the budget. But in April 2013, a North American PhD candidate tried to replicate their results and found he couldn’t. Using their figures, he got a positive result for GDP which would still rise by more than two per cent per annum. The famous, if red-faced, twosome had to admit they were Excel victims and had misplaced a comma.
Even the International Monetary Fund has confessed to similar mistakes, this time on the austerity cuts issue. We now know, because the Fund was honest enough to tell us, that cuts would hurt the GDP by two to three times more than it initially foresaw. Europe should go easy, says the IMF, and not ‘drive the economy with the brakes on’. The magic 60 per cent of GDP debt limit is no more sacred than the three per cent deficit limit; yet policies remain the same, because the neoliberal hawks seize upon every scrap of dubious evidence that seems to promote their cause.
We are faced with two basic questions. The first is why did the debts of European countries rise so steeply after the crisis struck in 2007? In just four years, between 2006 and 2010, debts escalated by more than 75 per cent in Britain and Greece, by 59 per cent in Spain and by fully 276 per cent in all-time champion Ireland, where the government simply announced it would assume responsibility for all the debts of all the private Irish banks. The Irish people would henceforward be held responsible for the irresponsibility of Irish bankers. Britain did the same, though in lesser measure. Just as profits are privatized, losses are socialized.
So citizens pay through austerity, whereas bankers and other investors who bought the country’s bonds or toxic financial products contribute nothing. After the 2007 crisis, the GDP of European countries dropped by an average five per cent and governments had to compensate. Escalating business failures and mass unemployment also meant more expenditures for governments just when they were taking in less income from taxes.
The New Morality
Economic stagnation is expensive – higher expenditure and lower revenue add up to a single answer: borrow more. Saving the banks and taking the consequences of the crisis they created are the fundamental reason for the debt crisis – and consequently for harsh austerity today. People were not ‘living beyond their means’ but the New Morality is clearly ‘Punish the Innocent, Reward the Guilty’.
This is no defence of stupid or corrupt policies such as allowing the Spanish housing bubble to inflate or Greek politicians to hire masses of new civil servants after each election. The Greeks have a bloated military budget and inexcusably refuse to tax the great shipping magnates and the Church – the biggest property owner in the country. But if your bathtub leaks and the dining room paint is peeling, do you burn down your house? Or do you fix the plumbing and repaint?
The human consequences of austerity are inescapable and well known: pensioners search through rubbish bins at mid-month hoping to find a meal; talented, well-educated Italians, Portuguese and Spaniards flee their countries as unemployment for their age group approaches 50 per cent; unbearable stress is laid on families; violence against women increases as poverty and distress rise; hospitals lack essential medicines and personnel, schools decline, public services deteriorate or disappear. Nature takes the brunt as well: nothing is invested in reversing the climate crisis or halting environmental destruction – it’s too expensive. Like everything else, we can’t do it now.
We know these outcomes, the results of what Angela Merkel calls ‘expansionary austerity’ policies. This neoliberal theory claims that markets will be ‘reassured’ by tough policies and reinvest in the newly disciplined countries concerned. This hasn’t happened. Pictures of Merkel adorned with swastikas are appearing throughout southern Europe.
Many Germans think they are helping Greece – and they don’t want to anymore. In fact, virtually all the bailout money has taken a circuitous route: EU government contributions made through the European Stability Mechanism have been channelled via the Greek Central Banks and private banks right back to British, German and French banks that had bought up Greek Eurobonds to get a higher yield. It would be simpler to give European taxpayers’ money directly to the banks, except that said taxpayers might notice. Why make an ongoing psycho-drama over two per cent (Greece) or 0.4 per cent (Cyprus) of the European economy? A cynic might say: ‘Easy. To ensure Ms Merkel’s re-election in September.’
The second basic question is: why do we continue to apply policies that are harmful and don’t work? One can look at this self-created disaster in two ways. Eminent prize-winning economists like Paul Krugman or Joseph Stiglitz believe that the European leadership is brain-dead, ignorant of economics and needlessly committing economic suicide. Others note that the cuts conform exactly to the desires of such entities as the European Roundtable of Industrialists or BusinessEurope: cut wages and benefits, weaken unions, privatize everything in sight and so on. As inequalities have soared, those at the top have done nicely. There are now more ‘High Net Worth Individuals’ with a much greater collective fortune than in 2008 at the height of the crisis. Five years ago there were 8.6 million HNWIs worldwide with a pile of liquid assets of $39 trillion. Today, they are 11 million strong with assets of $42 trillion. Small businesses are failing in droves, but the largest companies are sitting on huge piles of cash and taking full advantage of tax havens. They see no reason to stop there.
This is not a crisis for everyone and the European leadership is no more stupid than its counterparts elsewhere. It is, however, entirely subservient to the desires of finance and the largest corporations. Certainly, neoliberal ideology plays a key role in its programme but serves especially to emit thick smokescreens and pseudo-explanations and justifications so that people will believe There Is No Alternative. Wrong: the banks could have been socialized and turned into public utilities, like other utilities that run on public money; tax havens closed down, taxes levied on financial transactions and many other remedies applied. But such thoughts are heretical to neoliberalism (although 11 Eurozone countries will start taxing financial transactions in 2014).
I am a fervent European and want Europe to thrive, but not this Europe. Against our will we have been plunged into class warfare. The only answer for citizens is knowledge and unity. What the one per cent has imposed, the 99 per cent can reverse. But we’d better be quick about it: time is running out.
Susan George is Board President of the Transnational Institute and author of 16 books, most recently Whose Crisis, Whose Future? and How to Win the Class War, on her website in June for electronic download and print on demand along with six ‘Susan George Classics’.
* ‘The more things change, the more they stay the same.’
** Public debt is money owed by a government in the form of loans obtained on the financial markets rather than other forms of lending.
Europe‘s current crisis is more than economic. Between the German government advocating a dangerous austerity policy and European authorities lacking any other suggestions, it is clear that the 2008 financial crisis is no longer solely responsible for the downward spiral of Europe.
The GDP for countries in Europe has fallen by a considerable amount: 5.3% for Greece, 3.9% for Portugal, 4.1% for Cyprus, 2.3% for Italy, and 2% for Spain. This is without even mentioning the recession into which France is entering. In the first quarter of this year, the European Union economy contracted by 0.7%, or one percent when only taking into consideration the eurozone.
If it was only the 2008 economic crisis that was responsible for all this, Europe would not be one of the only one to suffer so much. For example, the United States, the birthplace of this crisis, registered a 1.9% increase in their economy in 2013 [fr] while their unemployment rate was at its lowest in four years.
Europe, which for a long time has aimed to maintain growth that compares favorably with United States, now finds itself completely lost among incoherent policies and disputes between countries[fr].
One of the main reasons for this current instability in Europe is the evident failure of the European policy authorities when their proposals seem more than enigmatic. Restricting interchange fees as proposed by Michel Barnier, the European Union Commissioner for the Internal Market and Services, is a perfect example of the Commission taking measures that will not have any concrete impact.
Capping interchange fees, bank charges paid by retailers when they make a card payment, would not only increase personal bank charges [fr], as the banks would want to recuperate the money lost by this cap, but the retailers profit margin will also increase, as they rarely lower their prices just because their costs have decreased.
The other significant issue which has notably accelerated the decline of Europe is the restricted austerity policy which the majority of EU countries have undertaken. It would be more logical for Europe to take inspiration from the countries that have pulled through, i.e. the United States, in order to stimulate the market rather than only focusing on reducing the deficit.
Youth unemployment rate in Europe between 2005-2013 via Les Crises – public domain
The most frustrating aspect about this issue is that the majority of the European leaders agree on this point, but no one dares to confront the life-long defenders of austerity, also know as « Sparkurs » [de] in Germany and its strict chancellor, Angela Merkel [fr]. But there are also critics of austerity on the German side. Last week, Gilles Moëc, head economist at Deutsche Bank, admitted to the news outlet Agence France-Presse that “there were some errors” [fr] in the selected strategy.
However, it’s not as if the Merkel method was fully tried and tested, in fact, it was far from it. Portugal, for example, had never been in such a terrible state until it was subjected to the European austerity policy. In two years, its unemployment rate increased by 5.3%, its budget deficit by 1.1%. As for its public debt, it’s now 123% higher than its GDP.
Julio Salazar Moreno, Secretary-General of Spanish worker’s trade union, USO, believes that the countries within the European Union need to stop with the austerity policy [pt], according to online newspaper Público:
Os países da União Europeia (UE) têm de parar “de uma vez por todas” com a aplicação de medidas recessivas, porque os cidadãos, alerta, estão a viver no limite dos sacrifícios
The countries within the European Union (EU) must refrain from enforcing austerity policies “once and for all” because the alert citizens are living at the very limits of their possible sacrifices.
The sledgehammer approach is just as inefficient for Greece, claims Gregor Gyzi, a president from a left-wing parliamentary group in Germany, Bundestag, by addressing the Greek readers [el] of news247:
οι επιβληθείσες, κυρίως από την γερμανική κυβέρνηση, περικοπές σε μισθούς και συντάξεις, οι απολύσεις και οι ιδιωτικοποιήσεις, όχι μόνο ώθησαν την Ελλάδα σε βαθιά ύφεση και κοινωνικά προβλήματα, αλλά κατέστησαν και αδύνατη την επιστροφή των δανείων στο εγγύς μέλλον
Imposed primarily by the German government, salary and retirement cuts, redundancies and privatisations, are not only going to push Greece into a major recession and cause social problems, but its also going to make loan repayments equally impossible.
Emigration figures for Europe are also far from surprising. In two years, 2.5% of the Portuguese population left the country. Who would have said ten years ago that today many Europeans would leave the continent to work in countries like Angola or Brazil?
Facing this alarming development, it is even more depressing to hear the responses of others, like that of the Prime Minister of Luxembourg, Jean-Claude Juncker, also the former minister of the Eurogroup, who recently gave his thoughts on the European crisis [fr] and concluded that what Europe needs is some “TLC”: a statement which speaks for itself.
Inspections will allow Brussels propose possible budget changes
The fund has rejected complaints from its former chief of mission to Ireland Ashoka Mody who said the austerity policies were doing more harm than good.
It has meanwhile emerged that Ireland will have to remain subject to regular budget inspections for almost two decades despite exiting the bailout this year.
Mr. Mody had said Ireland should consider scaling back its austerity policies. However the IMF says Mr. Mody no longer works for the fund and his views do not represent those of the fund.
The IMF has suggested it wants a full budget package of €3.1 billion in spending cuts and tax increases even if it is more than enough to meet Irish targets.
The Finance Minister has meanwhile confirmed that Ireland will remain subject to Troika inspections for almost two decades.
Michael Noonan says rules agreed by ministers last year will mean Ireland will have regular visits until it has repaid three-quarters of its EU bailout loans. Under our current timetable Ireland will not reach that target until 2032.
The inspections will allow authorities in Brussels to propose possible changes to future Irish budgets long after the bailout programme ends this December.
Europe is haunted by austerity. Public sectors across the European Union (EU) have been cut back and working class gains from the post-war period seriously undermined. In this article, I will assess the causes of the crisis, its implications for workers and discuss the politics of labour in response to the Eurozone crisis.
The underlying dynamics of the Eurozone crisis
Current problems go right back to the global financial crisis starting in 2007 with the run on the Northern Rock bank in the United Kingdom (UK) and reaching a first high point with the bankruptcy of Lehman Brothers in 2008. Two major consequences of the crisis can be identified. First, states indebted themselves significantly as a result of bailing out failing banks and propping up the financial system. Second, against the background of high levels of uncertainty financial markets froze. Banks and financial institutions ceased lending to each other as well as industrial companies. Countries too found it increasingly difficult to re-finance their national debts. The Eurozone crisis, also known as the sovereign debt crisis, commenced.
Nevertheless, this analysis only scratches the surface of the causes of the crisis. The fundamental dynamics underlying the crisis have to be related to the uneven nature of the European political economy. On the one hand, Germany has experienced an export boom in recent years, with almost 60 per cent of its exports going to other European countries (Trading Economics, 10 May 2013). Germany’s trade surplus is even more heavily focused on Europe. 60 per cent are with other Euro countries and about 85 per cent are with all EU members together (de Nardis, 2 December 2010). However, such a growth strategy cannot be adopted by everybody. Some countries also have to absorb these exports, and this is what many of the peripheral countries which are now in trouble, such as Greece, Portugal, Spain and Ireland, have done. They, in turn, cannot compete in the free trade Internal Market of the EU due to lower productivity rates. Germany’s export boom has resulted in super profits, which then require new opportunities for profitable investment. State bonds of peripheral countries as well as construction markets in Ireland and Spain seemed to provide safe investment opportunities. In turn, these investments led to yet more exports from Germany to these countries and yet further super profits in search of investment opportunities.
Who is being rescued?
It is often argued in the media that citizens of richer countries would now have to pay for citizens of indebted countries. Cultural arguments of apparently ‘lazy Greek’ workers as the cause of the crisis are put forward. Nevertheless, this is clearly not the case. Greek workers are amongst those who work the longest hours in Europe (BBC, 26 February 2012). In any case, it is not the Greek, Portuguese, Irish or Cypriot citizens and their health and education systems, which are being rescued. It is banks, who organised the lending of super profits to peripheral countries, which are exposed to private and national debt in these countries. For example, German and French banks are heavily exposed to Greek debt, British banks to Irish debt (The Guardian, 17 June 2011).
What is the purpose of the bailout programmes?
Is the purpose of the bailout programmes to ensure the maintenance of essential public services in Europe’s periphery? Clearly not. On the contrary, the Troika consisting of the European Commission, European Central Bank and the International Monetary Fund (IMF) demands cuts in public finances precisely for services such as education and health care. Is the purpose to assist peripheral countries in re-gaining competitiveness? Again, this too is clearly not the objective. The bailout programmes do not include any industrial policy projects.
The true nature of the bailout programmes is visible in their conditionality, making support dependent on austerity policies including: (1) cuts in funding of essential public services; (2) cuts in public sector employment; (3) push towards privatisation of state assets; and (4) undermining of industrial relations and trade union rights through enforced cuts in minimum wages and a further liberalisation of labour markets. Hence, the real purpose of the bailout programmes is to restructure political economies and to open up the public sector as new investment opportunities for private finance. The balance of power is shifted further from labour to capital in this process. Employers, ultimately, use the crisis in order to strengthen their position vis-à-vis workers, facilitating exploitation.
Are German workers the winners due to the export boom?
In contrast to general assumptions, German workers have not benefitted from the current situation. German productivity increases have, to a significant extent, resulted from drastic downward pressure on wages and working related conditions.
“Germany has been unrelenting in squeezing its own workers throughout this period. During the last two decades, the most powerful economy of the eurozone has produced the lowest increases in nominal labour costs, while its workers have systematically lost share of output. EMU has been an ordeal for German workers” (Lapavitsas et al, 2012: 4).
The Agenda 2010 and here especially the so-called Hartz IV reform, implemented in the early 2000s, constitutes the largest cut in, and restructuring of, the German welfare system since the end of World War II. In other words, Germany was more successful than other Eurozone countries in cutting back labour costs. “The euro is a ‘beggar-thy-neighbour’ policy for Germany, on condition that it beggars its own workers first” (Lapavitsas et al, 2012: 30).
Hence, while the mainstream media regularly portray the crisis as a conflict between Germany and peripheral countries, the real conflict here is between capital and labour. And this conflict is taking place across the EU as the economic crisis is used across Europe to justify cuts. In the UK, although not in the position of countries such as Greece, Portugal or Ireland, people too are faced with constant further cuts and restructuring including privatisations in the health and education sectors as well as attacks on employment rights. In short, across the EU, employers abuse the crisis to cut back workers’ post-war gains. The crisis provides capital with the rationale to justify cuts, they would otherwise be unable to implement.
What possibilities for labour to resist restructuring?
Considering that austerity is a European-wide phenomenon, pushed by Brussels but equally individual national governments, it will remain important that trade unions combine resistance to neo-liberal restructuring at the European level with resistance at the national level. To declare solidarity with Greek workers is a good initiative by German and British unions, for example. Nevertheless, the more concrete support is resisting restructuring at home. Any defeat of austerity in one of the EU member states will assist similar struggles elsewhere.
When thinking about alternative responses to the crisis, short-term measures can be distinguished from medium- and long-term measures. Immediately, it will be important that German trade unions push for higher salary increases at home so that the German domestic market absorbs more goods, which are currently being exported. Along similar lines is the proposal by the Confederation of German Trade Unions (DGB) for an economic stimulus, investment and development programme for Europe. This new Marshall plan is designed as an investment and development programme over a 10-year period and consists of a mix of institutional measures, direct public sector investment, investment grants for companies and incentives for consumer spending (DGB 2013). Neo-Keynesian measures of this type will ease the immediate pressure on European economies. However, they will not question the power structures, underlying the European political economy.
A victorious outcome in the struggle against austerity ultimately depends on a change in the balance of power in society. The establishment of welfare states and fairer societies were based on the capacity of labour to balance the class power of capital (Wahl 2011). Overcoming austerity will, therefore, require a strengthening of labour vis-à-vis capital. As Lapavitsas notes, “a radical left strategy should offer a resolution of the crisis that alters the balance of social forces in favour of labour and pushes Europe in a socialist direction” (Lapavitsas 2011: 294). Hence, in the medium-term, it will be essential to intervene more directly in the financial sector. As part of bailouts, many private banks have been nationalised, as for example the Royal Bank of Scotland in the UK. However, they have been allowed to continue operating as if they were private banks. Little state direction has been imposed. It will be important to move beyond nationalisation towards the socialisation of banks to ensure that banks actually operate according to the needs of society. Such a step would contribute directly to changing the balance of power in society in favour of labour.
In the long run, however, even the change in power balance between capital and labour will not be enough. Capitalist exploitation is rooted in the way the social relations of production are set up around wage labour and the private ownership of the means of production. Exploitation, therefore, can only be overcome if the manner in which production is organised is being changed itself.
 This article was first published in Norwegian on radikalportal.no
 European Monetary Union