Neoliberal policies control the economic strategy of the European Union towards its member states. As a result many of them steadily backslide into a second recession, one which could seriously endanger the shaky global economy, to say nothing of the devastation these countries are going through in order to meet the stringent demands of their austerity masters. Countries like Greece and Spain with Italy in the gun sights are taking on debt loads with high interest rates, coupled with austerity reductions in social services, meant to force them into conservative reforms, which include privatization of government functions and the creation of a flexible labor class, with reduced wages and benefits. Horrific stories abound on how these policies are implemented, including a huge government tax on energy that forces individuals to choose between heat and food on the table. It’s unsustainable neoliberalism, designed in this case to purge the social democracies of Europe from their traditional social safety nets while diminishing the power of labor. And this is only the first round. No one seems to remember that these economies had successful growth and stability until they were hit by the Great Recession. Neoliberalism is an opportunistic force which works best in times of economic despair, when people are frightened about the future and afraid of losing their jobs. Unemployment has now reached massive scales, as much as 50% of young Spanish citizens (under age 25) are unemployed and resistance to these neoliberal forces is gaining energy. The European Central Bank’s indifference to unemployment tells the whole story about the neoliberal emphasis of this doomed strategy. Perhaps this experiment in neoliberal austerity will provide the tangible proof that the experiment was actually carried out. Indeed, the first part of the experiment is already over—it failed—countries are sliding back into recession even though the lower value of the Euro helps Germany’s export economy do much better. Is this an example of finding the German people lacking when they have an opportunity to set things right? Are they not global players?
The Greek election in June of this year could provide an illustration on the complete lack of public confidence in the current policy of austerity, done without a hint of how such policies are even rational let alone how ineffective they are in addressing the main problem created by the Great Recession—massive unemployment—and that is one of the objectives of this strategy to produce an excess of labor and thus reduce labor costs—the main enemy of capitalism! This absurd conservative strategy of fixing an ailing economy through austerity is also fed by more than a dash of xenophobia throughout Europe; these two forces have merged into a seamless ship of state reminiscent of the Titanic—sailing into unknown conditions, but already taking on water. The austerity plan is strictly in place to force weaker governments to make concessions to the neoliberal cause. These policies make no sense on their own except to pursue the shock doctrine of facilitating a “free market economy” which is based on the enslavement of labor. The aim is to further weaken socialist governments so that they can’t stand up to multinational corporate influence. For that purpose it is succeeding!
Unless a new set of policies are quickly put in place, the stressed Eurozone countries face the threat of spiraling further into a debt crisis and unavoidably staring into the face of national bankruptcy. While traveling down this bumpy road, Greece for example could drop the Euro (a majority of those polled in Germany hope this is true) and revive its own currency, the drachma. No one knows what impact this will have either globally or on Greece and the Euro–the experiment has yet to be run. But if Greece withdraws from the Euro, it will force the banking system of Europe to recognize that the Euro was designed for good times only and that the system cannot sustain itself when the going gets rough. Each of the countries facing a debt crisis has a history of public outrage and revolt against such policies in the past and social instability in Europe seems a likely consequence and may be unavoidable at this point. Like global climate change, it may be too late to avoid some of the planetary misery that will emerge from these radical policies. Right now, it seems more like a game of chicken to see who will flinch first–will fiscal sanity from the European banking system come to the rescue with low interest “Eurobonds” (sovereign bonds; see below), or will we see a cascade of new governments being formed, something that Greece is now poised to achieve. It does not have to be that way. Fiscal austerity, the main concept imposed on these countries cannot work–it will only make things worse. As the Greek economist Yanis Varoufakis explains, belt-tightening can be done by a single person in a country, but not by the entire country at the same time. When the whole country tightens its belt the entire economy shrinks. Things are at a point where it’s far more important to think about jobs rather than loans to businesses, because the expansion of business must be preceded by demand. The European Union must stop thinking about banks and finance and start thinking about the most critical component of this recession—unemployment. It’s been estimated by the ILO (see below) that 50 million jobs have been lost globally to the Great Recession. Why isn’t that issue the most important focus of the European financial system? It’s because the neoliberals have decided that finance is more important than jobs and that is the central issue that forms the battleground for the future welfare of the planet and the short-term future of social justice.
Today, Europe seems poised to commit the same kinds of mistakes that the victorious allies made in forcing reparations against Germany after the First World War. Warned by British economist John Maynard Keynes against stringent reparations applied to Germany, the allies imposed harsh penalties that forced Germany to inflate its currency, as the country destabilized. Eventually the influence of these reparations came back to haunt the allies and devastate the world in the form of WW II. Now the tables are turned. This time around, it’s the Germans that are setting economic policies because they have the strongest economy in Europe. Are they retributionists or is it just that Chancellor Angela Merkel, as an East German, has never experienced any other approach to economic downturns except that of austerity? Or perhaps, as the NYT reports, she watched the reunification of Germany after the Berlin Wall fell and witnessed West Germany pouring, by some estimates, 2 trillion Euros into East Germany, which still suffers from high unemployment. Whatever Merkel’s motivations are for continuing along the disastrous path of austerity, the attempt at balancing a national budget through her neoliberal strategy, at a time when governments have slid back into recession, risks further disintegration of what were once cohesive societies until the Great Recession. The simple solution to this problem does not involve a steep learning curve. Whatever Merkel’s internal motivations are, she is placing the global economy and the stability of national economies in the Eurozone at risk. In the United States, we have not officially returned to a new recession, but the Ryan budget plan and the debt ceiling issue are still ahead of us and depending on the resolution of the Federal Budget rescission we will face on January 3, 2013, we could be swimming alongside many of the European countries treading water against the incoming tide of a new recession.
Mark Weisbrot, writing in The Guardian has proposed a simple, sensible strategy for Europe, which for Merkel at the moment will seem like radical brain surgery. He suggests that the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF) have the power to re-structure the debt of these countries, such that their interest rates could be substantially reduced. The ECB is still still trying to treat countries like Greece, Spain and Italy in a punitive manner, as if they have made fiscal mistakes in the past and need to pay for them by downward adjustments to their economies, reducing pensions, government services and wages—to form the “flexible labor” class of Europe. As Weisbrot argues, ECB could fix this problem by itself, through issuing sovereign bonds, with low interest rates, coupled with a flexible repayment schedule. When these economies are robust they can repay their debt at a higher payment rate compared to more difficult economic times when the repayment schedule can be more suitably configured. Flexibility in repayment is far better than forming a flexible labor force. That is how the fiscal policies of Europe should work.
The election of President Francois Hollande of France represents a new force in the European Union: he has already publicly stated that his main enemy is finance! And so it should be for the rest of the global population. While the Euro was designed as a strategy for growth, especially for German exports, it was never designed to deal with the kind of crisis ongoing in the Eurozone economies as the Great Recession continues to haunt the global economy, mostly focused now on the European Union. Europe is now in an unnecessary crisis and it is up to the European financial community to fix member problems just like we did for Germany after WW II, when we helped the country move from a Nazi economic state to a social democracy aided by the Marshall Plan (officially the European Recovery Program or ERP). East German born Angela Merkel did not experience this history, but she has been fully engaged in promoting the neoliberal cause in the destruction of social institutions in Eurozone states. At the moment, Hollande of France and Obama of the U.S. are serving as a counter weights to the policies of Angela Merkel and her conservative bankers (together with international investors, and the IMF).
ILO to the rescue? Weisbrot mentions one other force in the equation that could help pull the European Union into a more rational, therapeutic set of policies: the International Labor Organization (ILO), an affiliate of the United Nations could provide more weight to the counter balance of Hollande and Obama. From Weisbrot’s article:
- “The ILO estimates that the world has lost 50m[illion] jobs since the world economic crisis and Great Recession began – and the Troika [European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF)] is adding to the toll. In 2009, the ILO proposed a “global jobs pact”, which picked up support from the UN and the G20, but with little result. Last year, it proposed a “social protection floor”, which also won international support, but again, not much effect.“
- “On 28 May, the ILO will choose a new director general. The frontrunner is Guy Ryder, a former general secretary of the International Trade Union Confederation (ITUC). Last November, he secured the support of the workers’ group, comprising a quarter of the ILO electoral college, before his rivals were even known. There are also other candidates with regional support, such as Colombian Vice-President Angelino Garzón.“
- “But there is one candidate who is most likely to try to harness the ILO’s potential to challenge the devastating economic policies that have caused so much unnecessary unemployment and suffering in the past four years. That is Jomo Kwame Sundaram of Malaysia, the only Asian candidate.“
- “He is the Harvard-trained chief economist at the United Nations, also responsible for its technical cooperation programs. Reputedly behind the 2009 Stiglitz Commission report (pdf) [Joseph Stiglitz chaired this report] on the crisis, Jomo has shown clear understanding not only of the causes of the current economic crisis, but also of the failure of the relevant government and international institutions to bring us out of it. He would also expose the fallacies of the labor market liberalization policies currently being touted as the solution. His track record indicates that he would provide the necessary leadership at the ILO.“
- We should all stay tuned on this election and its impact on the Eurozone economic policies.
The ILO is the one force in the pool of arguments that can provide a more rational transition to sensible EU policies and save the system for everyone. John Maynard Keynes, who proposed the idea that governments should spend money to overcome recessions, is generally given credit for saving capitalism from itself in the 20th century and FDR, following Keynes’ formula, is credited with saving capitalism from itself in the United States. Some equivalent set of more rational policies will have to emerge, and now is not too early, if the Eurozone is to escape its own strangulating policies. Will the Euro be a transient glitch in the history of European Unionism? So far it certainly looks that way. Why is it that in times of sudden economic distress, reactionaries are the first to step forward with their draconian, unworkable solutions, and we have to wait for several iterations of economic misery before more rational, long-term strategies emerge? I guess long-term thinking takes more time, but it’s a short physiological distance from the brainstem to the frontal lobes. If Europe adopted the sovereign bond strategy, they would solve the problem for this recession and prepare themselves for handling recessions in the future. Paul Krugman’s idea that a government should go into debt to maintina full employment seems so much more rational than the way we handle these things now and if we followed that formula, it would help insulate our economies from periodic invasion by the neoliberal waring class. But, since we are now under the neoliberal banner we can expect recessions to be a constant, intermittent component to our economic landscape, just as they were in America before the New Deal improved on that dismal record and since neoliberal policies have gained momentum in America we are back on schedule for regular recessions!
RFMPrint This Post
- Comments Off