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Europe: an effective economic strategy? « Previous | |Next »
October 31, 2011

Jeff Madrick in How to Save Europe in the New Review of Books blog says that Europe has enough money to bail out Greece, provide support for Italy, Spain and Portugal, and keep its banks whole.

If the Europeans come together to solve their sovereign debt crisis it will mark the success of one of the great political and social experiments of our time; it will be tragic for Europe and for the world if they do not. So we have a political crisis of the eurozone – one that calls into question the very existence of the European project as a whole.


As we know the sovereign debt crisis in Europe is the result of the global financial crisis. But how did this come about? I've assumed that that the banks all ate too much US subprime debt and they got really sick, whilst the nation state's ballooning debt was the result of easy and cheap credit.

This overlooks that the eurozone banks may be a problem in themselves because they have huge balance sheets with a lot of low-return investments and that investors have little confidence in them. The austerity programs being put in place, and which will put Europe on a deflationary path, will not help the banks. Fixing the financial sector is necessary for economic recovery, but far from sufficient.

As growth prospects continue to weaken the Eurozone governments will come to recognize that government plays a central role in financing the services that people want, like education and health care; and that government-financed education and training, in particular, will be critical in restoring competitiveness in Europe.

Meanwhile fiscal austerity rules mixed with a "plan" to restore confidence--hardly an effective economic strategy. It hasn't worked so far, especially in Greece. Until eurozone governments start bailing out the real economy, rather than the banks, with public investment for growth, the rescue packages will go on failing.

George Papandreou, the Greek Prime Minister, has announced a plan for a referendum on the austerity measures imposed by his European partners in January. This was not part of the Euro rescue script. Is the goal of Papandreou’s move to renegotiate the terms of the deal imposed on Greece? Papandreou has also called a vote of confidence in his government for Friday night. Greece now faces a two-month period of being in limbo and economic uncertainty.

Papandreou's reason for a referendum was that the referendum remained the only way of overcoming public opposition to the spending cuts agreed as part of the eurozone rescue package. The spending cuts mean job losses, pay and pension cuts, the loss of public services and hope. Papandreou's manoeuvre is, of course, a last-ditch attempt to save his political skin after months of mass street action over previous helpings of failed austerity that have driven Greek society to the brink.

So the Greek people are to decide their own fate. That begins to address the democratic deficit in Europe. The European political class are aghast.

Up to now the Greek people say that they want to stay in the eurozone, but they don't want to pay off their debts. Polls in Greece have shown that 60% of the population are against the terms of the bailout but 70% are against leaving monetary union There is a real possibility that a no vote could plunge Greece into bankruptcy, force it out of the eurozone and a return to the drachma.

Europe does not have a Plan B in the event of a Greek default. Even if the Greeks vote yes and the wider eurozone buckles down to the German version of austerity and economic discipline with a neo-liberal mode of governance structured around deregulation, privatisation and the privileging of corporate power, it is not clear how long the gimmick Plan A can hold. China is meant to plug the financing gaps.

| Posted by Gary Sauer-Thompson at 7:05 PM | | Comments (6)


it's not the Greek economy that's being rescued, but European and US banks exposed to Greek debt. To protect the banks and prevent their own failures from seizing up the European credit system, the medicine is a spiral of spending cuts and tax increases that are sending Greece ever deeper into slump and debt.

The eurozone's debt and stagnation crisis isn't about state profligacy. It's mainly the result of the recession-induced slump in tax revenues triggered by the 2008 crash feeding back into the banks that caused it.

the long suffering debtor has revolted against the attempts by the creditors to grind down a subject state with austerity programs in the face of deteriorating results and visible opposition by the Greek public.

the Greek people are faced with a stark choice of austerity within the euro versus bankruptcy outside of it.

Greece has lost its sovereignty to Brussels and the International Monetary Fund.

The guy in the suit looks a bit like Juliane Assange. Same captions but the guy out the back scratching his chin is saying "Julian Who??"

The news from Brussels is that Greeks will not get the next tranche of their bailout money until the referendum is over.

For a government living from hand to mouth, the loss of this €8bn payment – even if only temporary – is a serious matter. Greece has to make €8bn in bond repayments in December, the first of which is due on December 19.

The ultimatum from Sarkozy and Merkel aims to ratchet up the tension and to put the frighteners on the Greek public so that they vote yes to staying in the euro.