The latest figures establish that the austerity program of the “troika”—the European Union, the European Central Bank and the International Monetary Fund—has created an economic catastrophe, the like of which has not been seen since the Great Depression of the 1930s.
Greek gross domestic product has fallen by a cumulative 21.5 percent since its peak in 2007 and is expected to decline by a further 4.5 percent next year. Such is the extent of the economic contraction that total government revenue from all sources will not even cover the interest rate payments on international loans. If any further “aid” is forthcoming or loan terms are extended, it will be designed to ensure the continued flow of funds to international lenders, but will not alleviate the economic situation in Greece.
The Greek catastrophe is only the sharpest expression of a crisis that is spreading through the eurozone.
Last week, Bank of Italy governor Ignazio Visco warned that his country faced a “vicious circle” of weak growth and lack of confidence. He was speaking after new figures showed that unemployment had reached its highest level in 13 years. The unemployment rate for young people is now 35 percent as factories shut down, firms go bankrupt and government spending is cut back as a result of the unelected Monti government’s austerity program.
The Italian economy moved into recession in the second half of last year. The economy is expected to contract 2.4 percent this year, with a further decline of 0.2 percent in 2013—a figure that could increase if present trends continue.
Spain and Portugal, both under austerity programs, are already well down the Greek road. The Spanish banking crisis is further away from a resolution following Germany’s insistence that money from European bailout funds cannot be used to cover past debts but only to facilitate new loans. This means that last June’s commitment by eurozone ministers to end the situation where national governments are responsible for the debts incurred by their banks is a dead letter.
In an interview with Bloomberg television, Columbia University economist Joseph Stiglitz ruled out prospects for a European “recovery”. Europe, he said, had “put in place austerity packages that almost inevitably will lead the economy to become weaker, they haven’t put in place anything that will promote economic growth. It’s difficult to see what the impetus for real growth in Europe will be.”
Commentary in the financial press continues to promote the fiction that there is a divergence between austerity programs, on the one hand, and the policies of central banks in pumping trillions of dollars into the global financial system, on the other. Typical were the remarks of financial journalist Stephen Koukoulas in the Australian Business Spectator. He claimed: “While the ECB is trying to pump up economic conditions, governments are cutting wages, services and hiking taxes.”
In fact, there is no contradiction at all. The ECB has made it a condition of its monetary stimulus measures that governments implement austerity measures. The provision of ultra-cheap funds by the ECB and other central banks is not aimed at trying to boost the real economy. It is intended to provide resources to the banks and finance houses to make profits through speculation even as the real economy continues to decline. Moreover, these measures are creating the conditions for a new crisis as the central banks become more dependent on global financial markets.
via www.wsws.org
Good post on a subject that seems to be neglected in the midst of our election. I refer readers of this blog to Greek economist Yanis Varoufakis's ongoing commentary on this theme. Most recently:
while designing the Recovery, we better beware: The return to growth should not come at any price. What grows matters. We want growth in sectors that generate good things that humanity needs more of and a deep deflation of the toxic sectors that make life nasty, brutish and short – from physical pollutants to real estate bubbles and toxic derivatives.
We must aim at the mobilisation of idle savings into medium to long-term investments that serve genuine human needs – rather than producing new bubbles for the purpose of dealing with the ill effects of previous bubbles that burst disastrously. None of this will be accomplished by markets caught up in an equilibrium of fear that is reinforced daily by universal austerity. Equally, none of it will happen unless public investment takes markets seriously.
Lastly, permit me to finish on a note appropriate to the great debates that take place in this fine building concerning this country’s role in Europe and with regard to your attitude to the Eurozone – to the currency union whose on-going disintegration is threatening to push us all into the mists of a long Winter of Global Discontent.
Like many of you here tonight, who happen to share a Eurosceptic disposition, I too think that we Europeans created a monster in the form of the Eurozone. And just like Mary Shelley’s Dr Frankenstein, whose intentions were not all bad, we now find ourselves unable to control our creation, the euro – a vicious beast that is wrecking our neighbourhood with reckless abandon.
But my message to my Eurosceptic friends, of both the Left and the Right, both here in Britain and in my own country, is this: Beware what you are wishing for. For the cruellest God is the one who grants us our wishes.
We may wish that inane Euro-loyalists get their comeuppance; that they learn their lesson the hard way, watching their ill-conceived Euro perish. But, tragically, if this happens, the pain will spread far and wide and the vast majority of victims will be outside the Eurozone and will suffer far more than the Eurocrats ever will.
If we fail to fix the Eurozone, Europe will most probably inflict, for the third time in a century, an unnecessary calamity upon humanity. My great fear, and conviction, is that, today, Europe’s worst enemies are the Euroloyalists who profess to serve and to believe in it. Not the Eurosceptics. Europe needs Eurosceptics, or better Eurocritics, to be at its centre. To stop deluding themselves that they can sit this one out.
After all, no economy is an island.
Posted by: john buell | November 04, 2012 at 01:38 PM