By Bruce Campbell, CCPA Volume 21 No. 9, March 2015
On January 26, a political earthquake brought the left-wing Syriza party to power in Greece with a sweeping mandate to end the six-year nightmare of economic austerity imposed by the European establishment.
Since the 2008 global financial crisis, the so-called German-backed troika – the European Central Bank, the European Commission and International Monetary Fund – forced Greece into accepting $275 billion in bailout loans conditional on harsh restructuring measures.
Under troika-mandated austerity, the Greek government has been forced to cut its budget by 38 percent – gutting public services, laying off thousands of employees, slashing retiree pensions by 40 percent.
The results amounted to a modern-day Greek tragedy.
The Greek economy (GDP) shrank by one quarter.
Unemployment rose to 28 percent and almost 60 percent for youth.
Average wages fell by 40 percent.
Canada has never experienced anything remotely comparable, not even in the depths of the Great Depression.
Framed as a blueprint for recovery – short-term pain for long term gain – the troika plan was nothing of the sort: austerity has driven up Greece’s debt burden from 125 to 175 percent of GDP.
Restructuring of the Greek debt was never in the cards. Leaked minutes from a May 2010 IMF board meeting revealed the true purpose of the loans: “[They] may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions.”
Greece was effectively insolvent but not allowed to declare bankruptcy for fear (in Berlin, Brussels and the banks) that it would set off a chain reaction in southern Europe.
Irresponsible lenders are the other side of the coin of irresponsible borrowers. However, the troika insisted on bailing out failed banks with no conditions and no questions asked.
To justify their actions, policy-makers and much of the news media propagated a narrative of debtor country profligacy. A speedy return to growth could only happen if these sluggish economies took some strong medicine, to boost confidence among private investors and financial markets.
Proponents of this approach included Stephen Harper who, in a visit to Athens in the spring of 2011, endorsed the socialist government’s austerity plan, expressing confidence that it would soon produce a return to growth.
The Angela Merkel-led German government (supported by a large majority of the population according polls) is the power behind this extreme austerity program. Such ideological intransigence and astonishing callousness in the face an ongoing humanitarian crisis is a sad case of a country forgetting its own history.
Harsh debt repayment conditions imposed on Germany after the First World War planted the seeds of Nazism, and ultimately led the continent straight back into war. More positively, in 1953 a large portion German debt was written off, with repayments tied to the country’s growth performance.
With the democratic victory of Syriza, the eyes of the world have been drawn to the new Greek Finance Minister, Yanis Varoufakis, who is charged with negotiating a new deal.
Several years ago I invited Varoufakis, a well-respected economist and academic, to speak at an event questioning the premise of austerity in Canada. He gave a commanding performance, shredding any argument for austerity and suggesting Canadians take note.
Now in power, Varoufakis has vowed to put an end to “fiscal water boarding” that has inflicted unimaginable pain and suffering on Greek society. He has said that Greece’s debt repayment needs to be tied to its ability to restore growth.
Varoufakis has been in high-profile negotiations with the International Monetary Fund to swap its sovereign debt for growthlinked bonds and will likely do the same with the European Central Bank and European creditor governments.
The Syriza government has pledged to end corruption, reform the bureaucracy, end the tax immunity for wealthy Greeks, and halt the fire-sale privatization of public assets. In its first week, the government scrapped the privatization of Greece’s main ports and the state electricity company.
Its program includes measures to alleviate poverty: food stamps, reconnecting electricity to homes that had been cut off, rehiring of public sector workers, tax cuts for all but the rich, a big increase the minimum wage and pensions, and a moratorium on private debt payments to banks above 20 percent of disposable income.
Implicit support for an end to austerity has come from ex-pat Canadian Mark Carney, now governor of the Bank of England, who argued in a recent speech for an end to hardline Eurozone budgetary policies.
What are the lessons from Syriza’s democratic success to date?
First, it has dealt a blow to the neoliberal austerity obsession that prevails among European policy elites.
Second, it demonstrates that a new progressive political force can emerge from outside the established political order – one that rejects the conventional rules of the game, with a bold anti-austerity plan connected to the aspirations of the Greek people.
Third, it raises hope for a realistic, humanistic path out of the mess that Europe finds itself in – a path that would allow the debtor countries of southern Europe to escape their austerity trap and begin a sustainable recovery.
The alternative is that, in the face of continued misery, populations will turn increasingly to right-wing nationalist, racist parties – from the National Front in France to Golden Dawn in Greece – bent on the dismantling of Europe.
Finally, it is a warning to established social democratic parties in Europe and beyond that have been apologists for, and at times enforcers of austerity, that they could quickly be rendered irrelevant. Witness the Greek socialist party Pasok, reduced from 44 percent in 2010 to now less than five percent of the popular vote.
This is a fast moving story. The challenges for the new government are enormous. The forces against which it is aligned are formidable. But history is being rewritten in real-time, and Greece’s new finance minister is the chief author.
Bruce Campbell is executive director of the Canadian Centre for Policy Alternatives.
Our Comment.
Prescribing austerity to solve the debt problem is like prescribing strict fasting to save someone dying from starvation.
Élan
