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.