Home > Greece > The buck stops here – Greece is fighting to save Europe

The buck stops here – Greece is fighting to save Europe

from Mark Weisbrot

Greece has been dragged through a lot of mud in the media over the past few years because previous governments overborrowed, and that contributed to the initial crisis that – we should remember – Spain, Portugal, Italy and almost everyone else in the eurozone had to go through. But the initial crisis could have been resolved relatively quickly. In the United States, which was hit by the explosion of an $8 trillion housing bubble, our recession lasted just 18 months. In Greece it has been six years, with a loss of a quarter of its national income, and more than 25 percent unemployment (and twice that for youth).

By now it is clear not only to the majority of economists, but to most people who are paying attention that this long depression was not only unnecessary but caused directly by bad policies.  The Greek government implemented budget tightening that shrank the economy and worsened the debt burden – which has gone from 115 percent of GDP before the Greeks signed their first agreement with the IMF in 2010, to more than 170 percent today. At the same time, the European Central Bank (ECB), which could have helped Greece by keeping its borrowing costs down, allowed Greece’s interest rates to soar, provoking a prolonged crisis not only for Greece but for the eurozone.  As a result, the unemployment rate in the 19-country eurozone is still twice that of the United States today.

All of this was due more to political than to economic motives. It was not financial markets or even the big banks that drove this disaster, but European officials who prolonged the financial crisis in 2011 and 2012 and used it to try to remake the economies of Greece, Spain, Portugal, Ireland, and Italy more to their liking.  After more than 20 governments in the eurozone had fallen, the Greek people elected a government – led by the Syriza party — that was committed to saying no to further austerity, economic damage, and mass unemployment.

European officials, led by extremists in the German government, offered “my way or the highway” to the new government of Greece after it was elected on January 25. On February 4, the ECB cut off the most important line of financing to the Greek banking system, provoking a stock market crash and more people taking their bank deposits out of the country. On February 12, European officials were indicating that Greece could lose access to Emergency Liquidity Assistance from the ECB, which would provoke a severe financial crisis and possibly collapse the Greek banking system.  But Syriza did not cave.  A week later, fearing an impasse that could force Greece out of the eurozone, European officials blinked and agreed to renegotiate the terms of the so-called “bailout” that previous Greek governments had agreed to, over the next four months.

There will be tense negotiations ahead, but one thing is clear: Greece is fighting for the future of Europe. Citizens of the eurozone countries didn’t know when they formed the monetary union that they were not only losing their sovereign and democratic rights to control their most important macroeconomic policies – monetary, exchange rate, and then fiscal (spending and taxing) — for the most vulnerable countries in recession, when they needed it most. They had also ceded this power to people with an anti-social-Europe agenda, people who wanted to shrink the government, and cut health care, pensions and wages.

Now Greece is trying to get some of that democracy back.  It is badly needed if Europe is to escape from this long nightmare.

See article on original website.

  1. graccibros
    February 27, 2015 at 3:59 pm

    I think this is very hard for the “American in the street” to understand, the similarity between Republican policy in Wisconsin, Illinois, New Jersey, Ohio…and so on, with state gov’ts trapped in legal requirements to balance the budget and Republican ideology of no new taxes, the dynamic available in the limited way of economic thinking is: who is vulnerable to a squeeze and the answer is to pit the general public against gov’t unions and their pension costs. I believe that Americans in the street still think that Europe is the last stand of the old welfare state which shrouds the establishment’s austerity-neoliberalism policies…and Germany’s complexities are even harder to unravel, their “exceptionalism” masking labor’s sacrifices and their unique trading position. Some of the most difficult negotiations are still to come for Greece: can they salvage enough to make a difference in job creation…it’s hard to see how the other side of the table can give that without opening the door for Spain and Italy…I think to give significant ground implies a large change in economic policy orientation. Do Americans realize that what is really on the table (and the direction is made explicit by the Varoufakis-Galbraith-Holland proposal here http://yanisvaroufakis.eu/euro-crisis/modest-proposal/ ) is nothing less than an updated new New Deal: funding and spending proposals for a nation in economic depression? Since we have been unable to “float” anything like that domestically – in the realm of ideas or practical politics – that’s the measure of the degree of difficulty involved for the Greek negotiators – and they may still have no choice at the end to resign or leave the E-zone. So indeed, the Greek efforts deserve our support.

  2. February 27, 2015 at 5:21 pm

    In 2009, Greek GDP was about 5% above potential, with unemployment at 8%+, a primary deficit exceeding 10% of GDP and CA deficit of about 15% (OECD) ! Structurally, a very shaky economy kept standing with ever increasing public and private debt.

  3. blocke
    February 27, 2015 at 6:53 pm

    Greece is fighting not only to save Europe but also the US. because the fight for a just distributive order in America has been lost long ago.

  4. aadil
    February 28, 2015 at 4:35 pm

    One can hardly understand how euro zone, trying to maintain its sovereignty turned blind to the hoax call of austerity as was made by US. It seems since after more than a decade when the union was established, the policy formulation has failed to create its own space. The result was the failure of the poor states to stabilize their base and compete within the union.

  5. Fiona
    March 2, 2015 at 11:44 am

    @ Dimitrios Papagianno

    You said
    “In 2009, Greek GDP was about 5% above potential”

    Have you any idea how ridiculous that sounds to someone not steeped in your jargon? In ordinary language that is not just wrong: it is unintelligible.

    It would really help the process of educating lay people, which I presume is part of the purpose of this site, if you took the trouble to explain the terms of art which masquerade as common words and which make that phrase coherent. It is not coherent at present.

    For a long time economists have managed to convince the rest of us that there is no point in trying to understand because it is all to difficult: which has left the field open for neoliberals who pretend it is like our household budgets, That is useful for their agenda, but it works because it is one of those easy, simple and wrong ideas so famously detected by Mencken.

    You cannot oppose such ideas by talking what is, on the face of it, gibberish.

    Please explain how something can be above its “potential”

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s