Austerity, eurozone policies need to change

By Satur C. Ocampo
At Ground Level | The Philippine Star

The government’s economic managers have been repeatedly assuring us that whatever happens to debt-ridden Greece and its European Union membership will have little impact in the Philippines. However, it’s worthwhile watching the interesting developments there. Then we can judge if these don’t really affect us – or if there are lessons we can learn.

Take, for instance, the Greek referendum result last Sunday: 61.3% voted “No.” They rejected further austerity measures imposed by the country’s key creditors in exchange for new bailout loans. (Greece owes its creditors 300 billion euros or $330 billion.)

That absolute-majority No vote meant two things:

1. It was a resounding rebuff of the European Union, the European Central Bank, and the IMF (the “troika” major lenders) by the people who have been enduring the pains of five years of austerity: 26% overall unemployment, 60% youth joblessness; severe cuts in basic public services to enable the government to attain targeted budgetary surpluses (this reminds us of our own cry: “Tama na, sobra na!).

2. Secondly, it was a solid manifestation of popular support for the five-month-old leftist government, headed by Prime Minister Alexis Tsipras of the Syriza party, which they voted into power last January on an anti-austerity platform. (The creditors had hoped that a “Yes” majority vote would throw out the leftists from power.)

Tomorrow (Sunday), a “make-or-break” meeting of leaders from 28 European countries will decide how they will act in this situation. Greece, for its part, has submitted a new three-year bailout program with concomitant promised reforms.

Certain reactions to the “No” vote, however, might nudge the creditors to review their hardline stand: a) in Greece five mainstream political parties have signed a joint statement signifying their support for Tsipras’ position; and b) “far-Right populist politicians across Europe cheered the referendum victory,” including Nigel Farage of Britain’s UK Independence Party, and Marine Le Pen, of France’s National Front, according to the International New York Times. The INYT quoted Farage: “It’s fantastic to see the courage of the Greek people in the face of political and economic bullying from Brussels (the EU capital).”

Moreover, scathing criticisms of the austerity impositions and the strictures on members of the Eurozone (EU member-states using the euro as common currency) ought to spur the troika to seriously review their conservative, antidemocratic financial policies.

Nobel Peace laureate and former World Bank chief economist Joseph Stiglitz wrote:

“The economic model underlying the Eurozone was predicated on power relationships that disadvantaged workers. And sure enough, what we are seeing now, 16 years after the Eurozone institutionalized those relationships, is the anti-thesis of democracy.

“Many European leaders want to see the end of Alexis Tsipras’ leftist government,” Stiglitz noted. After all, he added, “it is extremely inconsistent to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unlimited power of wealth. They seem to believe that they can bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.”

By voting “No,” he surmised, the Greeks might gain the opportunity “to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.”

Another Nobel laureate, economist and INYT columnist Paul Krugman, concurred with Stiglitz on EU bullying and the implication of the “No” vote. More stingingly, he wrote:

“The truth is that Europe’s self-styled technocrats are like the medieval doctors who insisted on bleeding their patients – and when their treatment made the patients sicker, demanded even more bleeding.”

Krugman opined that a “Yes” vote would have condemned Greece to “years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that the suffering serves no purpose.” Thus, he added, the landslide “No” victory “offers at least a chance for an escape from this trap.”

On the prediction that Greece might leave the eurozone if bailout negotiations fail, Krugman wrote:

“Unless Greece receives really major debt relief… leaving the euro offers the only plausible escape route from its endless economic nightmare. And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.”

Thomas Piketty, the youngish French economist who created waves worldwide with his 2013 book, “Capital in the 21st Century,” pitched in with a jab at Germany, Greece’s main antagonist in the EU.

“My book recounts the history of income and wealth, including that of nations,” Piketty told German newspaper Die Zeit (The Times) in an interview. “What struck me… is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt: neither after the First nor the Second World War. However, it has frequently made other nations pay up…”

Piketty pointed out that after World War II Germany’s debt was more than double its GNP. Yet at the 1953 London Debt Conference, 60% of Germany’s foreign debt were cancelled and its domestic debts were restructured. He concluded:

“When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a big joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”

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E-mail: satur.ocampo@gmail.com
Published in The Philippine Star
July 11, 2015

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