The inherent instability of the current
financial system, largely to blame for the recent credit crisis, has raised its
ugly head once again. What began in October last year with Greece admitting to
a budget deficit exceeding 12 percent of its gross domestic product (well beyond the EU's supposed limit of three
percent) has burgeoned into a Europe-wide sovereign debt crisis threatening
to split the monetary union apart.
When it became clear that the EUR110
billion bailout loan to Greece had not placated market fears that the crisis
would spread to other weaker economies such as Spain and Portugal, EU leaders
and the International Monetary Fund (IMF) constructed a EUR750
billion emergency fund to restore market
confidence. The fund is not actually intended for use, but rather to protect
eurozone countries from speculative attacks and to ensure that they can
continue borrowing from the private sector.
While many commentators are quick to
blame overblown government budgets for the current crisis, more measured assessments
that there are structural factors at play. Like most of the world, these
governments had their excesses during boom years of easy credit, but they can
hardly be blamed for the downturn that sent their national deficits skyrocketing. The
fact that private banks, a number of which were implicated in the credit
crisis, willingly lent vast sums to supposedly profligate and corrupt
governments is hardly mentioned (for an exception, see C.P.
Chandrasekhar). In what is becoming
a familiar pattern, the burden of adjustment has fallen not on the financial
sector, but on the Greek people and the taxpaying citizens of Europe.
The Greek public are now facing
austerity measures of eye-watering severity - pay and pension freezes, public
spending cuts and tax increases - the effects of which will be ongoing declines
in income and employment. The IMF has admitted
that even if the program 'works', Greece's debt will rise from 115 percent of
GDP today to 149 percent in 2013. In other words, the economy is likely to
enter into an even deeper recession, with devastating impacts for the working
and middle classes.
Why not just restructure Greece's debt
and let the international money lenders swallow the losses? According to economist Jayati
Ghosh, this is the most obvious solution. Austerity measures will not correct
the existing imbalances but actually worsen them. The problem, she argues,
is that "the power of finance - in politics, in media and in determining
national and international economic policies - remains undiminished despite its
recent excesses and failures."
Here lies the crux of the matter. The
EU/IMF bailout is not intended to ensure that Greek workers will be able to pay
the bills, but purely to restore confidence in the markets. Of course, the
by the IMF's managing director Dominique Strauss-Khan is that market confidence
will "deliver the growth, jobs, and prosperity that the country needs for
the future", but the underlying assumption is that a placated international
finance sector is a precondition for this future prosperity. The same can be
said of the new EU stability fund. Markets may be reassured that Spain and
Portugal are safe from default for now, but they too must implement harsh
austerity measures that will negatively affect incomes and employment.
The Greek bailout and the EU stability
fund are merely temporary solutions to the underlying problem
of privatised finance. Neither addresses the
structural faults of a system in which the health of the real economy - the
part concerned with actually producing goods and services - is entirely
dependent on the conditions of an overblown financial sector whose only purpose
seems to be fattening the pockets of speculators and bankers. Austerity
measures and bailouts may keep the banks happy, but what about the people?
Popular protests, which have already caused three deaths in Athens, are likely
to spread as other governments across Europe cut spending.
Perhaps for once, governments should
start listening to their citizens instead of the financial lobbyists,
market gurus and policy technocrats. The process could yield some
common sense results. Rather than frantically shoring up an unravelling
system that has proven inherently unstable, unsustainable and unjust,
policy-makers would be forced to address a fundamental question: how
can we build an economy that best serves the needs of the people whilst
environment upon which we depend? With the inequality gap widening,
rising and the world's ecosystems on the brink
of collapse, one thing is for certain: throwing more money at the bailout economy is not the answer.
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