'Done In' by Our Own

Who Are These Purportedly ‘Leftist’ Leaders Really Working For?

by Hank Van den Berg
UNL Professor Emeritus

We are being repeatedly disappointed by purportedly ‘progressive’ and ‘leftist’ politicians. Who can forget the British Labor Party’s Tony Blair collaborating with George W. Bush to promote the invasion of Iraq over non-existent weapons of mass destruction; French Socialist President Francois Holland’s embrace of economic austerity policies that are cutting social spending and rolling back worker rights; or Barack Obama’s escalation of the wars in the Mideast, his illegal drone attacks that are overwhelmingly killing civilians and unknown low-level combatants, and his support for the Tran-Pacific Partnership ‘free trade’ deal? Well, this continued deceit by left-wing politicians reached a new level this month with Greek Prime Minister Tsipras’ cave-in to the European Union (EU) and Germany’s increased demands for austerity policies in that beleaguered nation.

Greece’s Syriza Party Seemed Refreshingly Different

Tsipras and his Syriza Party were elected just half a year ago explicitly to reverse the earlier austerity and privatization policies that had pushed the Greek economy into a deep and persistent depression. Gross Domestic Product (GDP) contracted by over 25 percent after 2010, and unemployment has surged to nearly 30 percent, with 70 percent youth unemployment. Immediately after the election, Tsipras sought to renegotiate the economic program required by the so-called ‘troika’—namely, the European Central Bank (ECB), the EU Commission, and the International Monetary Fund (IMF)—in exchange for temporary financing of the Greek government’s debt. However, he and his finance minister were not just rebuffed, they were vilified as irresponsible, offensive and uncooperative. The troika (and especially the German government that dominates the European Union leadership) not only refused to negotiate a relaxation of the cuts in government spending, increased taxes, forced privatization of public assets and labor market deregulation, they actually increased the demands on Greece—even more cuts in government programs and pensions, and a larger privatization program under the direct supervision of the EU. This latter demand constitutes a complete surrender of national sovereignty, as foreigners will decide who gets to buy up Greek assets at what will be fire-sale prices in the current depressed Greek economy. The cuts and larger sell-offs of government assets are all much larger than what was agreed to by earlier governments before the Syriza Party was elected to reduce those onerous conditions.

The Syriza government decided in early July to put the acceptance of such new, harsher requirements up for a public referendum. The response was quick and unequivocal: 62 percent of Greeks voted against accepting the new austerity measures. Then, just four days later, the Tsipras government did exactly the opposite and it accepted all—yes, all—of the draconian policies. The stunning turn-around defies reason. It can only be interpreted as an intentional deceit orchestrated behind the scenes by the powers that really control the EU and thus have complete power over national politicians.

Some Recent History

Greece joined the European Union in 1981 when it was still mostly a free-trade area whose members were still working to increase regional governance and financial cooperation. There was active cooperation to keep exchange rates between individual European currencies stable, but this was proving difficult. There were frequent devaluations and payments imbalances disrupting the system. When Germany unified in 1991, the leadership of West Germany authorized the printing of West German marks to replace the former East German marks on a one-for-one basis despite the black market’s more realistic 4 to 1 ratio. This was a de facto subsidy that also greatly increased the German money supply, and the inflation-fearing German Central Bank immediately countered by sharply increasing interest rates. A massive inflow of money to take advantage of the high interest rates for the strong German currency caused a number of other European currencies to collapse. It was clearly impossible to keep exchange rates among European currencies constant if large governments like Germany decided to pursue their own interests—such as expediting German reunification—and ignore the need to keep government expenditures and money creation in line with current exchange rates and financial balances. It was at this point that the EU countries (led by the country that had just upset the system, Germany) formally agreed to explicitly eliminate exchange rate volatility by getting rid of national currencies and adopting instead a single regional currency. The shift was slated to take effect in 1999.

At a meeting in May of 1998, the European Union looked at the economic data and officially announced that of the 15 members of the EU, only Greece was deemed by the European Commission to not be ready to join the common currency; its government debt was too high. But not all of the 15 member countries wanted to join the scheme: Denmark, Sweden and Britain opted to keep their own currencies and not join the single currency area in order to avoid losing their own power to adjust their money supply to fit economic conditions. Greece, however, did not take its rejection lying down, and the right-wing government at the time hired Goldman Sachs to help it meet the technical criteria. In 2000, Greece was suddenly deemed to have come in compliance with euro-area requirements. Goldman Sachs helped Greek authorities shift government debt to where it would not be counted in the standard measures of the government budget deficit—a practice that was actually reported throughout the media at the time but ignored by the EU authorities. The euro became the official currency of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal and Spain.

When Greece joined the euro area in 2000, its government budget was actually in surplus by 3 percent of GDP. However, the right-wing government took advantage of the low euro interest rates to borrow extensively so that it could increase expenditures without raising taxes. By 2007, the year before the failure of U.S. subprime mortgages caused the entire global financial system to seize up, the Greek government budget was in deficit annually by nearly 3 percent of GDP—a 6-percentage point swing in 7 years. But, the Greek economy grew rapidly over this period, which caused the trade deficit to grow to nearly 10 percent of GDP. Greeks were effectively consuming 10 percent more than they produced. Much of this consumption was funded by debt. Private banks in Europe were happy to lend to the Greek government because, after all, it was part of the euro area and would never lack euros to pay back its loans.

However, when the global financial crisis hit in 2008, Greek economic growth stopped, government tax revenues fell, and government expenditures rose to support unemployed workers, cover for lower pension-tax receipts, and maintain government employment. Soon Greek government debt rose above 100 percent of GDP in 2008 (recall, it had been fraudulently found to be less than 60 percent in 2000). When the German, French and other European private banks that had lent Greece so much money became hesitant to lend more, interest rates on Greek debt shot up from 2 percent to over 6 percent. This meant that Greece had to pay over 6 percent of its annual GDP in interest on government debt. By 2009, it had to borrow over 5 percent of GDP to cover the 2008 budget deficit plus over 6 percent of GDP to pay interest—together, nearly 12 percent of GDP. Hence its debt as a percentage of GDP rose to over 120 percent of GDP by 2009, and over 130 percent by 2010. In sum, the Greek debt crisis was triggered by a global debt crisis born elsewhere. But Greece’s situation was made particularly difficult by a decade of careless spending and lax tax collection by its right-wing government.

When private banks sought to unload their debt and refused to lend to Greece, the European Central Bank and the European Commision called in the IMF. They decided to provide Greece with low-interest financing for Greece to pay back its loans to the private banks—mostly French and German. In the process, the banks replaced the Greek loans that were unlikely to ever be paid in full with newly created euros. If this sounds like a bank bailout, yes, it most assuredly was. But in the process, the Greek government remained in debt—only now it was in debt to the IMF, the European Central Bank, the European Stabilization fund operated by the European Commission, and individual European governments. And these creditors imposed harsh demands for Greece to change its economic policies—something private creditors cannot do so easily. Specifically, the troika and powerful governments like Germany demanded that Greece impose ‘austerity’ policies that included higher taxes, reduced government employment, reduced retirement payments, restrictions on labor rights, and more than 20 percent cuts in wages to remaining government workers. Also, the troika demanded that the Greek government sell public assets such as several harbor facilities, airports, the national railway, the electric company, entire publicly owned islands and other government land. To make sure that Greece would follow the creditors’ demands, the ruling coalition in 2010 effectively forced Greece to choose a new prime minister that had previously worked for a major global financial bank. Clearly, this was not democracy at work.

Greece was forced to introduce the same neoliberal economic agenda of privatization, cuts in social expenditures, liberalization of labor markets (read: suppression of unions), government employment cuts, reduced environmental and safety regulations, liberalized foreign trade and finance, and strict protection of private property that the IMF routinely imposes on indebted developing economies. These policies did indeed reduce Greek government debt because, as already explained, they pushed Greece into a deep depression that, six years later, has still not bottomed out. Several million Greeks have moved to other countries, while over 25 percent of the labor force remains unemployed in Greece. And now, after an election and a referendum that clearly showed the Greek public favored less austerity come what may, the Greek government is accepting even more onerous austerity measures in order to continue receiving financing to cover debt to the very organizations that provide the financing and demand the debt-raising austerity measures.

Why Austerity?

The myth persists among pundits and the media that austerity policies are necessary for an indebted economy to pay its debts and to restore economic growth. The truth is quite different. Cuts in government spending and employment, cuts in wages and rising taxes slow economic activity—they do not expand it. Production and employment only rise if someone wants to use their income to buy things. But with income falling, demand for output, and thus production, also falls. Government borrowing may actually increase because falling incomes reduce tax revenue. All in all, a bigger government deficit on top of a smaller GDP raises debt as a percentage of output. Today, after six years of austerity, Greece’s debt is at 180 percent of GDP—a 50 percent increase… not the decline in debt hoped for. An IMF staff report leaked to the media now estimates that more austerity will cause the debt to rise to over 200 percent of GDP. So, austerity policies are not expected to work. Is one to conclude, therefore, that austerity is a smokescreen for forcing a political shift rather than an economic revival?

Even more difficult to understand is why the Syriza leadership chose to ignore the vote it had called just a few days earlier. In fact, why was the referendum even held in the first place? Some commentators suggest that the powers-that-be expected a vote in favor of austerity—given Greeks’ alleged fear of getting tossed out of the European Union. In fact, many polls suggested a very close vote, and the EU spent substantial effort to influence the Greek vote toward favoring acceptance of the EU conditions. Perhaps the EU’s ruling elite miscalculated. On the other hand, perhaps the ruling elite actually wants to throw Greece out of the EU in order to send a clear message to other electorates thinking of rebelling against the overwhelming power of the undemocratic EU institutions, and the reversal by Tsipras is a desperate attempt to avoid rejection from the EU.

In point of fact, Greece would be better off defaulting on its debt and leaving the euro.

Greece would actually be better off exiting from the euro area, while staying in the EU and its free trade area. But, in the short run, Greece is caught between a rock and a hard place. If it accepts further austerity, unemployment may grow further, incomes will continue to fall, and an entire generation will have to find their fortunes in other countries. If Greece instead rebukes the official creditor organizations, it will not receive further loans and it will have to default on its debt. It would have to create a new local money so that its economy can function, but that money will be greatly depreciated in value relative to the euro. But, unlike the never-ending depression it is now caught in because it can do nothing to stimulate economic activity, with its own money the Greek Central Bank can print as much money as it needs to fund its government, pay government workers, pay pensions, pay unemployment assistance, pay for projects to put people to work, and recapitalize its banking system. Inflation is not a problem with such high unemployment and excess capacity throughout the economy. With the depreciated currency, Greece’s exports will be cheaper, and imports will be much more expensive. Within a few years this will stimulate employment in tourism, food exports and many other exports, while domestic producers will hire people to produce some of what used to be imported from abroad. Employment will thus increase, and Greece will begin to grow again. Had Greece taken this route back in 2010, as some economists (including yours truly) urged, Greece would now be in better shape and not facing further growth in unemployment. Granted, Greece’s default would have been to the private banks, and this would have forced other European governments to directly bail out their own banks, rather than doing it stealthily through loans to Greece.

But the creditors would never have allowed Greece to default, you might reply. Yes, indeed, that is why the EU engineered what was effectively a coup d’etat and arranged behind the scenes for a new banker-friendly prime minister to head the Greek coalition government that was in place. What followed was a bailout of private banks and a deep depression in Greece. Now a rebellious Greek electorate has been punished by what must be yet another coup—this time in the form of a sudden deceitful change in course by a prime minister who has gone against everything he campaigned on.

It has become painfully clear that the European Union is not a democratic institution. This regional governance structure is not working on behalf of the average citizen; rather, the ruling elites campaign on false slogans and really intend to solidify the neoliberal economic structure—one of little government regulation, low taxes, private ownership of even public goods like utilities and transportation networks, and the domination of private finance—that the dominant corporate and financial interests demand. It is also a system that is destroying what remains of democracy at the national level by overruling the democratically determined wishes of the nations’ populations and imposing policies they do not want.

But what are Europeans to do? If you vote for the right, governments will openly institute neoliberal policies. If you vote for the left, as Greeks did, governments will—after some period of bravado and deceitful claims to the contrary—also reduce wages, cut government social programs, privatize everything from transportation to education, and cut environmental, safety, and labor regulations. Is it any wonder the public is so cynical about politics…

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