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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

Eurozone's troubles deepen « Previous | |Next »
January 16, 2012

From all accounts the effects of the imposed neoliberal austerity (a purging of the rottenness from the system) has resulted in Greece's economy being in shambles, its society in turmoil, and its finances ruined. Yet more cuts are coming even though a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating since the economy shrinks, government revenue falls, and the debt is harder to repay.

Crisis management is the new normal in the EU, but as the EU lacks good mechanisms for crisis management, the European future looks bleak.


Greece is on its knees and its future looks to be one of fiscal bondage and discipline in a world where the economic centre has shift to east Asia-- notably India and China. The EU is now deep in recession and is likely to remain so for some time. Many sovereign states in the EU owe large amounts of debt and are likely unable to pay it all back. They desperately need economic growth but are forced to cut spending, hurting their near-term growth.

Merkel bnd Sarkozy's (or 'Merkozy's' ) austerity policies are imposed through EU summits, and the technocratic European Commission, and the non-European IMF, onto other EU countries. There is little democratic legitimacy in this.

In the Financial Times Wolfgang Munchau says that:

The eurozone itself has fallen into a spiral of downgrades, falling economic output, rising debt and further downgrades ... With each turn of the spiral, the financial and political costs of an effective resolution increase ... We have moved past the point where electorates and their representatives are willing to pay the ever-rising costs of repairing the system...Expectations are changing quickly, and so is the acceptance of a violent ending.

As Paul Krugman observes in his Keynes Was Right European nations like Greece and Ireland, who that have had to impose savage fiscal austerity as a condition for receiving emergency loans, have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.

However, it is unlikely that Keynesian aggregate demand management alone will lead to long-run sustained growth because the economic engines in the EU need a major overhaul to ensure long term growth that emerges from being connected to the economic centre of the global economy.

But its not just an economic crisis in the EU. The failing economic policies are now intertwining with democratic crisis and political fracturing across the EU, as the economic crisis becomes a deep crisis of European Union itself .

| Posted by Gary Sauer-Thompson at 7:42 AM | | Comments (5)


I'm surprised at your link to the American Prospect article to illustrate the Greeks' predicament. That article is just a ranting condemnation of Greek politicians, Greek unions, Greek students, Greek public servants and just plain Greeks.

The author condemns everything Greek, and leaves the reader with the strong impression that Greece's predicament is entirely the fault of the Greeks and that they deserve their misery. It is an awful article.

I was looking for an informed Greek perspective on the economic and political crisis they are experiencing. An earlier link states that Greece's problems are mostly fiscal—tax collection is terrible, and public spending is both high and inefficient. Public debt, at nearly 158 percent of gross domestic product and rising, is clearly unsustainable and unpayable. Many concur with that account.

Palaiologos argues that:

The country is experiencing a national depression, both financially and psychologically. It is accompanied by a collapse of relations between the state and society but also within society, with every group thinking itself victimized by the rest and resisting by any means necessary the surrender of privileges it has long held at the expense of the common good.

The analysis is from a free market perspective and it targets the way that Andreas Papandreou's PASOK party has spread the spoils of power to its armies of supporters. Palaiologos says that:
The central element of the setup they constructed was a bloated, inefficient public sector, financed by European money and ever-expanding binge borrowing, with out-of-control spending on every level, from pensions and arms to public works and hospital supplies. This was combined with a widespread tolerance of tax cheating and other kinds of illegality (for example, in home building, which flourished outside any and all planning restrictions) and collusion between politicians and powerful interest groups in the private sector. Such groups, including politically connected construction companies but also closed industries like drugstores and trucking, were protected from competition and were thus able to thrive. The aim of this spoils system was to cater to Greeks’ long-standing, fundamentally contradictory view of the state: both as an alien power to be avoided or openly resisted and as the predominant source of sustenance and professional advancement.

The system created was one of mismanagement, corruption, and tax evasion and it resists reform.

That critique could also be applied to the US and to Australia if/when the coal and iron ore run out or markets fail. It's not about Greece; it's about modern "capitalism".

You could also argue that European democratic politics are also in deep crisis given the democratic deficit and the narrow neoliberal economic solutions being imposed on some EU states by France and Germany.