Greek Prime Minister Alexis Tsipras has been meeting German Chancellor Angela Merkel to discuss his country’s economic strategy and debt repayments.
The point of Austerity in Greece was never to help that country pay off its debts; it was to create a permanent debt that Greece would never be able to pay off.
Under a submissive government, this was feasible – as it has been in many countries in what is laughably called the Developing World – but now Syriza has taken control and Alexis Tsipras could have the Troika (European Central Bank, IMF and the European Union – the three organisations that have been lending money to the Greek government) over a barrel.
The plan was to add Greece to the list of nations running a ‘zombie economy’ in the service of neoliberal corporate interests, rather than the well-being of its own citizens.
The Troika’s settlement with Greece was similar to that carved out by the western banks with the Developing World – the creation of a Debt Trap.
Western banks indulged in a lending spree across the Developing World during the latter half of the 20th century but the oil shocks of the 1970s created a domino effect of economic disaster which ended up putting most of Africa and Latin America on the verge of bankruptcy.
They could not be allowed to default on their debts. This would have allowed those countries to recover but would have harmed the western world – both economically and politically, as its influence would have faded.
So the IMF stepped in with ‘bridging loans’, ensuring that the original debts could be serviced – but there was a cost. In return for these loans, the IMF created a mechanism called the Structural Adjustment Programme (SAP – an appropriate acronym as it has sapped away a huge amount of money from every nation where it has been used).
The SAP set conditions under which debtor nations were provided the bridging loans: The sale of nationalised industries and resources – mostly to foreign-owned corporations and governments; the removal of capital controls on money flowing into and out of these nations; allowing the IMF to dictate the level of public spending; prioritising debt repayment and corporate welfare over infrastructure investment and human welfare; and suppression of wages and restrictions on trade unions.*
This is more or less the deal that Greece was offered.
The result has been clear – as Professor Simon Wren-Lewis pointed out in his Mainly Macro blog yesterday: “Austerity… is of course why Greek GDP has fallen by 25 per cent.”
At the moment, the Troika is threatening Tsipras with the loss of further loans, as he has stated that he intends to reverse the privatisations that have been forced on Greece over the last few years, raise the minimum wage, and increase public spending. These are measures designed to reverse the Troika-engineered Greek economic collapse and make it possible to start paying off the huge debt the country has built up.
Tsipras wants that money because he wants his economic recovery to take place in an orderly way, so he has agreed not to roll back the privatisations that have already taken place but to review those that haven’t; to introduce collective wage-bargaining, stopping short of raising the minimum wage but encouraging non-statutory wage rises; and tackling the humanitarian crisis with free medical care for the uninsured unemployed, along with housing guarantees, at no extra cost to the public purse.
But here’s the thing: Greece can manage without that loan money, if it has to. Yes, there will be a great deal of pain, but Tsipras effectively has the Troika over a barrel. The promise of some money is better than no money. All he has to do is hold his nerve and point out that what the Troika is doing is exactly the opposite of what it is supposed to be doing.
By funding Greece during Austerity, the Troika was perpetuating its debt, rather than helping end that debt; now it is actively fighting a plan that will genuinely help end that debt. And the world can see this.
It is an important lesson for the UK, as well. This country didn’t need the Troika to enforce privatisation, wage suppression, public spending restrictions and so on because we have a neoliberal Conservative-led government that is already avid for those things.
Our economy has suffered badly – and our people have suffered brutally – because of these choices by rich Conservatives who have not had to bear any of the pain themselves.
For no reason.
It seems possible that both Greece and the UK could probably take a leaf out of 1920s German chancellor Gustav Streseman’s book – re-industrialisation and (in Greece’s case) renegotiation of loans and an exit from the Euro in order to create a new currency. Whether that is practical is best left to economists who have more expertise than a layman like this writer.
What is clear is that Austerity – and its champions – are bad for everybody’s national interest.
*Austerity – The Demolition of the Welfare State and the Rise of the Zombie Economy, Kerry-Anne Mendoza, published by New Internationalist. Pick up a copy now!
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