March 2011, Week 3


Options: Use Monospaced Font
Show Text Part by Default
Show All Mail Headers

Message: [<< First] [< Prev] [Next >] [Last >>]
Topic: [<< First] [< Prev] [Next >] [Last >>]
Author: [<< First] [< Prev] [Next >] [Last >>]

Print Reply
Portside Moderator <[log in to unmask]>
Reply To:
Sat, 19 Mar 2011 14:19:09 -0400
text/plain (247 lines)
Dispatches From The Edge

Europe's Austerity: A Grimm's Fairy Tale

By Conn Hallinan
March 16, 2011

 * In the Greek town of Aphidal, people have stopped
 paying road fees. In Athens, bus and metro riders are
 refusing to cough up the price of a ticket. On Feb.
 23, 250,000 Greek protesters jammed the streets
 outside the nation's parliament.

 * The Portuguese nominated the protest song "A Luta E'
 Alegria" (The Struggle is Joy) for the Eurovision song
 contest and, when judges ignored it, walked out in
 protest. They also put 300,000 people into the streets
 of the country's major cities on Mar. 12.

 * Liverpool bailed from a Conservative-Liberal scheme
 to supplement government funding with private funding
 when it found there wasn't any of either, and the
 British Toilet Association protested the closure of
 1,000 public bathrooms across the country.

In ways big and small, Europeans from Greece to
Portugal, from Britain to Bavaria are registering their
growing anger with the relentless assault inflicted by
government-imposed austerity programs.

Wages, working conditions and pensions that unions
successfully fought for over the past half century are
threatened by the collapse of banking systems caught up
in a decade-long orgy of speculation that the average
European neither took part in, nor profited from. Even
the so-called "well off" workers of Bavaria, Germany's
industrial juggernaut, have seen their wages, adjusted
for inflation, fall 4.5 percent over the past 10 years.

The narrative emanating from EU headquarters in
Brussels is that high wages, early retirement, generous
benefits, and a "lack of competition" has led to the
current crisis that has several countries on the verge
of bankruptcy, including Ireland, Greece, Portugal and
Spain. Now, claim the "virtuous countries"-Germany, the
Netherlands, and Finland-it is time for these
spendthrift wastrels to pay the piper or, as German
Chancellor Andrea Merkel says, "do their homework."

It is an interesting story, a sort of Grimm's fairly
tale for the 21st century, but it bears about as much
resemblance to the cause of the crisis as Cinderella's
fairy godmother does to the International Monetary Fund

While each country has its own particular conditions,
there is a common thread that underlines the current
crisis. Starting early in the decade, banks and
financial houses flooded real estate markets with
money, fueling a speculation explosion that inflated an
enormous bubble. In climate and culture, Spain and
Ireland may be very different places, but housing
prices rocketed 500 percent in both countries.

The money was virtually free, with low interest rates
on the bank side, and cozy tax deals cut between
speculators and politicians on the other. That kept the
cash within a small circle of investors. While Bavarian
workers were watching their pay fall, German banks were
taking in record profits and shoveling yet more capital
into the real estate bubbles in Ireland and Spain. The
level of debt eventually approached the grotesque.
Ireland's bank debts, if translated into dollars, would
be the equal of $10 trillion.

The Wall Street implosion in 2008 sent shock waves
around the world and popped bubbles all over Europe.
While nations on the periphery of the European Union
(EU) tanked first-Iceland, Ireland, Latvia, Romania,
Hungry, and Greece, economies at the heart of the
EU-Britain, Spain, Italy, and Portugal-were also
shaken. According to the Financial Times (FT), total
claims by European banks on the Greek, Irish, Italian,
Spanish and Portuguese debts alone are $2.4 trillion.

The European Union's (EU) cure for the crisis is a
formula with a long and troubled history, and one that
has sowed several decades of falling living standards
and frozen economies when it was applied to Latin
America some 30 years ago. In simple terms, it is
austerity, austerity and more austerity until the bank
debts are paid off.

There are similarities between the current European
crisis and the 1981 Latin American debt crisis.  "In
both cases debts were issued in a currency over which
borrowing countries had no control," says the FT's John
Rathbone. For Latin America it was the dollar, for
Europe the Euro. Secondly, there was first a period of
easy credit, followed by a worldwide recession.

Bailouts were tied to the so-called "Washington
Consensus" that demanded privatization, massive cuts in
social services, wage reductions, and government
austerity. The results were disastrous. As public
health programs were eviscerated, diseases like cholera
reappeared. As education budgets were slashed,
illiteracy increased. And as public works projects
vanished, joblessness went up and wages went down.

"It took several years to realize that deflating wages
and shrinking economies were inconsistent with being
able to fully pay off debts," notes Rathbone. And yet
the "virtuous" EU countries are applying almost exactly
the same formula to the current debt crisis in Europe.

For instance, the EU and the IMF agreed to bail out
Ireland's banks for $114 billion, but only if the Irish
cut $4 billion over the next four years, raised payroll
taxes 41 percent, cut old age pensions, increased the
retirement age, slashed social spending, and privatized
many public services. When Ireland recently asked for a
reduction in the onerous interest rate for this
bailout, the EU agreed to lower it 1 percent and spread
out the payments, but only on the condition of yet more
austerity measures and an increase in Ireland's
corporate tax rate. The newly elected Fine Gael/Labor
government refused.

To pay back its own $152 billion bailout, however, the
Greek government took the deal. But the price is more
austerity and an agreement to sell off almost $70
billion in government properties, including some
islands and many of the Olympic games sites.

But the "deal" will hardly repay the debt. Unemployment
in Greece is 15 percent, and as high as 35 percent
among the young. Wages have fallen 20 percent, pensions
have been cut, and rates for public services hiked.
Growth is expected to fall 3.4 percent this year, which
means that Greece's debt burden is projected to
increase from 127 percent of GDP to 160 percent of GDP
by 2013. "Your debt will continue to increase as long
as your growth rate is below the interest rate you are
paying," economist Peter Westaway told the New York

Austerity measures in Portugal and Spain have also cut
deeply into the average person's income and made life
measurably harder.  In Spain, more than one in five
workers are unemployed, and consumer spending is
sharply off, dropping by a third this past holiday
season. Portugal is actually in worse shape. It has one
of the slowest economic growth rates in Europe, a dead-
in-the-water export industry, and a youth unemployment
rate of over 30 percent.

In Britain, the Conservative-Liberal government has cut
almost $130 billion from the budget and lobbied for
what it calls the "Big Society." The latter is similar
to George H.W. Bush's "thousand points of light" and
envisions a world in which private industry and
volunteerism replaces government-funded programs. The
actual result has been the closure of libraries, senior
centers, public pools, youth programs, and public
toilets. The cutbacks have been most deeply felt in
poorer areas of the country-those that traditionally
vote Labor, as cynics are wont to point out-but they
have also taken a bite out of the Conservative Party's
heartland, the Midlands.

 Conservative voters have organized demonstrations to
 save libraries in staid communities like Charlbury and
 to protest turning public woodlands over to private
 developers. According to retired financial officer
 Barbara Allison, there are 54 local voluntary
 organizations that run programs like meals on wheels
 in Charlbury. "We're already devoting an awful lot of
 our time to charity and volunteers," she told the FT.
 "Am I not doing enough? Is [Conservative Prime
 Minister] David Cameron going to volunteer?" In any
 case, as Labor Party leader Ed Milliband points out,
 how does Cameron expect people "to volunteer at the
 local library when it is being shut down?"

U.S. Treasury Secretary Timothy Geithner strongly
endorsed the Cameron program last month and said that
he "did not see much risk" that the cutbacks would
impede growth. But even the IMF warns that the formula
of treating debt as the central problem in the middle
of an economic recession has drawbacks. This past
October an IMF study concluded "the idea that fiscal
austerity stimulates economic activity in the short
term finds little support in the data."

But a massive program of privatization does mean
enormous windfall profits for private investors and the
banks and financial institutions that finance the
purchase of everything from soccer fields to national
parks. Those profits, in turn, fuel political machines
that use money and media to dominate the narrative that
greedy pensioners, lay-about teachers, and free loaders
are the problem. And austerity is the solution.

But increasingly people are not buying the message, and
from Athens to Wisconsin they are taking their
reservations to the streets. The crowd in Charlbury was
a modest 200, and the tone polite. In Athens the
demonstration drew 250,000 and people chanted
"Kleftes," or "thieves." But the message in both places
is much the same: we have had enough.

A bus driver in Athens told Australian journalist Kia
Mistiles that his wages had been cut from 1800 Euros
($2500) a month to 1200 Euros ($1660). "There are more
cuts coming into effect in the next three months,
that's why the protests are heating up. I am worried
that my wages will be cut to 800 Euros ($1110) a month,
and if that happens I don't know how I will survive."

But he has a plan. "The situation is reaching a
climax," he told Mistiles, "because working people know
that the austerity measures go too far, and with the
final rollout, they can't survive. So there is nothing
to do but protest," adding, "You wait until next
summer. The situation in Greece will explode."

It is unlikely that Greece will be alone.


Portside aims to provide material of interest to people
on the left that will help them to interpret the world
and to change it.

Submit via email: [log in to unmask]

Submit via the Web: http://portside.org/submittous3

Frequently asked questions: http://portside.org/faq

Sub/Unsub: http://portside.org/subscribe-and-unsubscribe

Search Portside archives: http://portside.org/archive

Contribute to Portside: https://portside.org/donate