Wednesday, October 20, 2021
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Jorge Fabra Utray.Economist

These days, when we talk about Greece, we may have to start by giving a warning about the misrepresentation of words.

No economist can be opposed to austerity because it is one of the basic principles of economics. The translation of "austerity" into economic language is "efficient utilization of productive resources" and the opposite of the concept of austerity is "waste", more precisely, the "inefficient use of those resources." Splurging out is to build an airport without airplanes, to build hundreds of homes that stay empty afterwards; to build highways along which few cars circulate. Against all this, austerity.

However, it is not austerity to do without doctors, professors and researchers; to disorderly destroy a high percentage of industrial and business infrastructure, or leave people without employment or in precarious economic exile, or condemn an entire generation of professionals whose training was paid for by all of us. This is no longer austerity; rather it is waste, and in this case, with clear contractionary effects on economic activity and employment and has a very negative effect on the potential capacity for growth.

These days we are seeing this in Brussels: the rules against Greece. Nobody denies that the rules have to be enforced. But when we have already found out previously that those rules are inefficient, because they do not lead us toward achieving the stated objectives, then we are no longer dealing with economy. Rather, with a wicked sense of political and economic power that is not supported by the general European interest but national and class interests and, possibly even worse, in purely political, partisan interests. We have to stop the fire spreading. Syriza could burn like wildfire all across Europe. That is the concern of the Euro-negotiators. It is not even an anti-economist ideology. It is simply power. And we have to show it. Greece cannot be the mirror for anyone.

We are facing growing inequalities

However, yes it is so. Be aware: Greece has lost 25.6% of its GDP; Spain 7.3% since 2008. Greece has an unemployment rate of 25.8%; Spain 23.4%. Greece and Spain have a youth unemployment rate of 51%: more than half of our youth, the future of our society, and also of our economy. What greater waste could there be? Greece has a debt of 175% of GDP; Spain 98%. Greece has 35.7% of its population at risk of exclusion; Spain 27%... The situation in Spain is better than Greece, no doubt... but can we really call a situation better that, although it is not worse, is also very bad?

We face the growing inequalities between North and South; there is an increase in inequality between citizens. When we talk of austerity policies in Europe, we have to start by stating this fact. The reality that endorse this, incontrovertibly, is the data.

Beyond a programme to address the social emergency in Greece, as Mariangela Paone tells us in her recent book "The Four Seasons of Athens", the new Greek government does in fact have a programme that seeks to provide solutions to the situation of economic meltdown and humanitarian crisis in Greece today. However, its implementation requires the Eurogroup to give the Greek State budget a margin to be used in the generation of effective demand and increased use of Greek productivity. The Greek government Syriza has shown its willingness to implement structural reforms to regain the credibility of its economic management; designed to rebalance the negotiating strength in the labour market; to build a fairer and more capable tax-raising structure, face up to tax evasion and the impunity with which this issue has addressed in recent years. But no. It seems that changing the status quo that has dominated and sunk the Greek economy is not a priority for conservative Europe.

The adjective "realistic" applied to the programme no longer is dependent on Syriza but rather the Eurozone institutions. It cannot be that those who, with their superior strength, prevent the Greek government programme being carried out, are the very same who accuse them of not carting out their programme. Moreover, saying it just seven weeks after winning the election! Nevertheless, what Syriza itself is already achieving, is undoubtedly the legitimacy of rules that do not go well together with the main foundation of the European Union: a union of peoples whose right is founded on democracy.

Is it nationalism or democracy?

Claiming that sovereignty resides in the citizenry, is not nationalism but a call of attention towards "other general European interests", an end to the crisis that consistently makes explicit, through the back door and only partially: monetary easing and fiscal expansion, though still insufficient to escape this many-faceted stalemate. The failure by France and Italy as regards their commitments to fiscal deficits, without having been sanctioned, is already questioning of the terms of fiscal consolidation. It is also a reflection of the asymmetry of power within the European Union or of a philosophy that has dominated the EU since Maastricht: tough on the weak, kind to the powerful. Or was it a concession to France and Italy for not helping out Greece in their negotiations?

Helping to understand Europe

The political debate that the position of the Greek government has undone itself already, by itself, an implicit recognition of serious political -and therefore also economic- mistakes in European integration: the ideological intransigence "austerity as penance for excess" of others, hiding the fact that those excesses were also nourished from the "central" states and their banks. In fact, make no mistake, the second bailout of Greece in 2012 was really a bailout of private creditors of Greek banks recapitalized by the Greek State funds obtained as loans from the European Rescue Fund. In this way the Greek State, in addition to substituting the position of debtor to the Greek banking, went on to become indebted to European and international public institutions that replaced, in turn, financial private creditors.

Therefore, the rescue in the end was also the rescue of the Central banking, mainly the German and French, Greek creditor banks whose creditor positions was replaced by the taxpayers of the Eurozone represented in the two European bailout funds. Very little of the rescue funds reached the Greeks. Following different paths, their tour ended in French, German and other banks who were able to dilute their exposure to Greek banks. An example of socialization of private losses. This is true to such an extent that only 5% of the Greece rescue funds have been designated to meet the financial needs of the Greek State. (15,000 M Euros approximately, which is the sum of primary public deficits of the Greek State between 2010 and 2014).

But then, something similar happened in the Spanish banking rescue. The toxic assets of our financial system were mainly derived from the bursting of the housing bubble. It was the German excess of savings and their placement in emissions from Spanish banks, part of the air we breathed and inflated our bubble. But the sting has just fallen on Spanish taxpayers.

In a globalised world -let's only worry about the European Union for now- the co-responsibility for the excess is clear. Without German savings, Spanish savers had by themselves not generated sufficient bank deposits to finance the construction, between 1997 and 2007, of over five million homes, more that 500,000 in some years, as many as in the rest of Europe. Then better not ask the German financiers of the Spanish banks where they ended up putting the money they placed in the Spanish financial institutions. This business was an excess, for lack of adequate supervision and regulation, ending in bankruptcy, as both participants in this situation were equally irresponsible, both the borrowers and the informed lenders. Hence from there, the European Left raised the need for Europe Euro to mutualise the risk, at least the debt above 60% of the GDP, through the issuance of Eurobonds, which Germany continues to be opposed to.

The exit from the crisis requires Greece to undertake true structural reforms ? both in Greece and in the institutions of the European Union- and not just "labour market liberalisation" which depresses consumption more, with privatisation and deregulation. In Spain, we may have to think about undoing some structural counter-reforms: the labour reform, reform of the electricity sector, to mention two systemic sectors that are at the root of poverty and difficulty of making way for a new production model that increases our potential capacity for growth.

This debate, and all what it means as a turning point in politics and in the European economy, is what is now being represented symbolically by Syriza in Europe. And maybe this is the reason why the Greek government has put all Eurozone governments against it... to the demerit of those governments. But I do not think it is unreasonable to think that change has already begun. And if so, would we should chalk it up -as Krugman has already done- to Syriza's credit.

Yanis Varoufakis -effectively the UE-, and all Eurozone governments against the proposals of the Greek Government -some actively, others passively- and hundreds of economists in the world and millions of citizens in Europe support the negotiation of Tsipras and Varoufakis: the "Manifesto of the three hundred" led by James Galbraith, a professor at the University of Texas; in similar vein, so have other economists such as Paul de Growe, Krugman, Stiglitz, Martin Wolf, Wolfgang Munchau, Mark Blyth... and German trade unions, to which significant SPD deputies have added their voices. Finally, economists, trade unions and demoscopic surveys inside and outside Greece, in Spain too, that directly or indirectly support the efforts of the Greek government. Even the head of the IMF, Olivier Blanchard, an economist himself, has warned that with interest rates so low, fiscal impulse in the form of public investment is necessary. The problem is not financing but demand.



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