– By Euclid Tsakalotos In many ways the structural adjustment programmes have been a success! It all depends on what you think the Troika (IMF, ECB, Commision), and the Greek governments carrying out the policies, were aiming at. If you think that the …
– By Euclid Tsakalotos
In many ways the structural adjustment programmes have been a success! It all depends on what you think the Troika (IMF, ECB, Commision), and the Greek governments carrying out the policies, were aiming at. If you think that the goal was reducing Greece’s enormous national debt then the programmes have been a resounding failure. In 2010 Greece’s national debt was around €310 billion. Three years later, and with all the pain involved, it has been reduce to €309 billion, and of course, as national income has plummeted, it has increased as a share of GDP.
Oxford Economics undertook an interesting experiment earlier this year. They asked the question of what would have happened if the South as a whole had undertaken only half of the austerity measures actually taken in the period after 2010. It turns out that Greece in 2012 would have had 300,000 more jobs and national income would have fallen by 14 percentage points less than it actually did. And the cost? One percentage point less of a reduction in the general government deficit. That is to say that instead of the deficit been reduced by around eleven percentage points, it would have been reduced by about ten. Is there anybody who could possibly think that 300,000 unemployed represent a fair trade-off for such a small benefit with respect to the budget deficit? I think not.
It is much more convincing to argue that the goals of the austerity programmes lay elsewhere. The reduction in wages and pensions, the squeezing of an already inadequate welfare state, and the abandonment of all forms of protection in the labour market do not constitute unfortunate byproducts, but the essential logic of the whole approach. An approach entirely compatible with Merkel’s vision of a conservative federal Europe in which all nation states will abide by tight fiscal rules, and in which the predominant economic adjustment mechanism will be the wage rate (needless to say in a downward direction). What we have, in other words, is not a response to the world economic crisis and the issue of burgeoning government and private debt, but a further turning of the neo-liberal screw.
In my forthcoming book, written with Christos Laskos, to be published by Pluto Press in the autumn (Crucible of Resistance: Greece, the eurozone and the world economic crisis), we call this the class instinct hypothesis to explain the inadequacy of the elite’s response to the crisis. We compare this to the structural-incompetence hypothesis, which suggests that the poverty of the response has more to do with the inadequacies of the eurozone’s economic and financial architecture, the underdevelopment of the democratic decision-making apparatuses and the cognitive-locking of neo-liberal ideas that has hampered any thinking “out of the box”. Clearly such factors have all played a role. But the importance of incompetence as an explanation of the elite’s response is beginning to wear thin. After so many years of extreme austerity, and in particular the humanitarian crisis that belies any thought of a Greek “success story”, one would have expected a more dynamic response had it all been a matter of structural incompetence. Its absence can only underline the prevalence of class instinct.
But class instinct is one thing, and rationality is another. There is no guarantee that Merkel’s conservative federal solution provides a long- term stable solution for the problems of the eurozone. Monetary unions need a banking union, they need fiscal transfers from more prosperous to less prosperous regions, they need coordinated macroeconomic policy and much more besides. The idea that all will be all right on the night if we follow Germany’s example ignores the fallacy of composition. Not all countries can expand their exports simultaneously, and Germany cannot act as a small open economy, ignoring the demand conditions of the wider economic union. The eurozone cannot survive if it does not acquire some of the institutions of a monetary union. It cannot survive such grotesque regional, and of course, social inequalities.
But more importantly still the project may falter because of the resistance that is growing to such an openly class project. The whole of the South is promised nothing more than a decade of stagnation when and if the recession ends. The indignados, social movements of all kinds, unions and a new Left are beginning to challenge such an eventuality. They are beginning to spread the word, first learnt during the 1930s: in a recession the needs of the many are part of the solution, not the problem. But there are more radical stirrings still. Central planks of the neo-liberal project have been belied by events both before and after the crisis.
With respect to the financial system, the idea that liberalized finance will ensure that resources will go to where they are most needed, that it will serve the needs of the real economy, hardly needs any further refutation. Liberalized financed has primarily stoked bubbles in real estate, in stock markets, and in derivatives. There is no way out of the mire that does not include a headlong confrontation with finance capital.
With respect to labour markets we have an equally blaring refutation. The idea that flexible markets would serve the real economy, employment and structural adjustment had been severely tarnished even before the outcome of the crisis. The Lisbon process in the EU, with its adaptability, employability and entrepreneurship pillars (the fourth pillar to do with equality was no more than a fig leaf) had clearly failed by the mid-2000s. This was even recognized by the European Commission, not known for outbursts of self-criticism. The skill and talent of workers must once more take centre stage in any alternative to austerity. As Leo Panitch and Sam Gindin have long argued an economy of needs requires an economy of workers’ capacities.
It is difficult not to conclude that the old is dying and the new is struggling to break out. The new must challenge both consumption and production prototypes. There will be no return to pre-2008 status quo. What we have before us is a move to a starker, more authoritarian, neo-liberalism. It is unlikely that this can be defeated without mass mobilization on the part of social movements and unions. Centrist and social democratic parties are in trouble nearly everywhere because they are failing to represent their social base. And without an agenda of jobs, wages and pensions, it seems difficult to see how this can be reversed. Such an agenda needs new thinking with respect to questions of production. But none of the above will make much headway until the problem of democracy, or its lack, has been confronted. Social movements need to take up the democratic mantle, to argue for an EU that challenges the power of financial markets, and MNCs, to dictate economic decision-making. EU institutions need to allow for democratic choices and social experimentation. The retreat to national decision making is unlikely to offer much relief to unions and other social movements, because it does not give any evident response to the power of finance and large corporations. We need more than ever supra-national solutions to supra-national problems. We are trying to mobilize on exactly this platform, a strategy that can confront our humanitarian crisis, but also opens new ground for the eurozone. It is only with such an approach that we feel that we can reach out to others struggling elsewhere in Europe for a different exit from the crisis. It is the only way to build international alliances that can confront the class policies of our opponents.
– Euclid Tsakalotos is a SYRIZA MP and professor of economics at Athens University, and is currently a member of parliament responsible for economic policy. His book, written with Christos Laskos, Crucible of Resistance: Greece, the eurozone and the world economic crisis, will be published by Pluto this autumn.
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