Divide and rule

from Grazia Ietto-Gillies

Two now familiar sights on our TV screens. First sight: Merkel and Sarkozy standing together on an international podium and giving us their deliberations about another country. Second sight: the Prime Minister of the country deliberated on returning meekly home with a 30+ page homework to do. We know of meetings between Merkel and Sarkozy but we never hear of meetings between the leaders of the loser countries.

Greece,Ireland,Portugal,SpainandItalyhave all been the objects of discussions, decisions, deliberations, impositions each one in its own turn. The deliberations and impositions have a tremendous impact on the countries themselves. The impact is very similar in the five affected countries: dismantling of the social security system; rise in unemployment; sale of the country’s assets. All these measures – perversely – leading to an increase in the debt that the policies are suppose to reduce. 

Given the common dire situation these countries are in, I would have expected the leaders of these countries to meet up and develop a common strategy. Such a common strategy might have included request for restructuring of debts (with the strong countries picking up the problems this would create for their own banks); policies for real growth and commitment to tackle the debts only when growth was forthcoming; serious reform of the financial sector; introduction of a STET tax. 

After all the five countries object of the deliberations together command 40 percent of the Euro zone population and 35 percent of its income. A strong and common stance by them could not have been ignored by the rest. We should not forget that though these countries need the financial sector as buyer of their debt, the financial speculators need outlets for their huge funds: they cannot all be invested into German bonds. By letting themselves be picked up one at a time by the markets and then the strong decision-makers within the EU rather than develop a common strategy they could only lose more. Lost they have indeed. 

It is quite interesting to read (The Guardian, 16 Nov.) that the EU commissioner Michel Bernier has now decided to suspend or blackout all downgrades of countries by the ratings agencies. It is difficult not to ask oneself why this was not done earlier when negotiations with Greece or Ireland or Portugal or Spain or Italywere going on. Why have these countries been allowed to be savaged by the agencies and the markets. Has the commissioner’s timing something to do with the risk ofFrancebeing downgraded? Why where not the leaders of these countries getting together and imposing their own conditions including a blackout on ratings? 

I here encourage economists from Greece, Ireland, Portugal, Spain and Italy to start a petition to their governments to encourage them to act together. 

Grazia Ietto-Gillies
iettogg@lsbu.ac.uk