[Peace-discuss] Mark Weisbrot: How Greece Could Change the Future of Europe

[Robert Naiman]

https://news.vice.com/article/how-greece-could-change-the-future-of-europe

How Greece Could Change the Future of Europe
By Mark Weisbrot

January 28, 2015 | 3:45 am

The Syriza party's big win in Greece's legislative election last weekend is
a turning point in the long political fight over Europe's botched recovery
from the financial crisis and world recession of 2008-2009. The occasion
presents a milestone for the eurozone, which has been plagued by mass
unemployment and economic stagnation, but it remains to be seen how much
this election will speed up the reversal of the destructive policies that
brought the eurozone to its present state.

"Democracy will return to Greece," declared Alexis Tsipras, the charismatic
40-year-old leader of Syriza who will become the country's youngest prime
minister in 150 years, as he cast his vote in Sunday's election. "The
message is that our common future in Europe is not the future of austerity."

His remarks provide a concise political statement that goes to the core of
the main problem afflicting both Greece and the eurozone. Simply
contrasting the economic recovery of the United States — the epicenter of
the earthquake that upended global finance in 2008 and 2009 — with that of
Europe makes plain what a difference democracy makes.

A wave of discontent is crashing the status quo in Greece. Read more here.

Even the limited-accountability, Wall Street-dominated form of democracy
that prevails in the US proved vastly superior to the economic autocracy of
the eurozone. Although the Great Recession was America's worst downturn
since the Great Depression, it lasted just 18 months before the recovery
began. The eurozone had a recession of similar length, then lapsed into
another one in 2011, and has only recently begun a sluggish recovery. As a
result, unemployment in the region stands at 11.5 percent, more than twice
that of the United States (5.6 percent).

The difference is due to economic policy. The US got a modest stimulus; the
weakest economies of the Eurozone got budget tightening. The Federal
Reserve purchased government bonds under a program of "quantitative easing"
beginning in 2008, while the European Central Bank did not announce a
similar program until last week.

Unelected European authorities have been using the crisis to force the
governments of more troubled member nations to accept economic changes that
the electorates of these countries would never vote to approve.
Officials making policy decisions in the US were at least somewhat
accountable to an electorate. Voters in the eurozone removed more than 20
governments from power, but the destructive policies imposed by unelected
European authorities — the European Commission, the European Central Bank,
and the International Monetary Fund — have marched forward for years,
effectively disenfranchising popular sentiment in Europe. Perhaps nowhere
in the eurozone have these policies failed more miserably than in Greece.

The election of Syriza is the biggest breakthrough in the painfully
slow-motion process of European voters reclaiming their democratic input on
fundamental economic policy issues. An anti-austerity backlash put
Socialist French President François Hollande in office in 2012, but he
didn't deliver the economic relief he had promised. Now it is Tsipras's
turn.

Syriza has certain advantages due to the passage of time. First, the fiscal
austerity that Greece signed on to — a combination of tax increases and
spending cuts to reduce the budget deficit — is pretty much done.
Budget-tightening measures amounted to just 0.3 percent of GDP for 2014, as
compared to 3.2 percent, 3.8 percent, and 5 percent respectively in the
three previous years. This explains why the economy finally began to grow
at 0.6 percent of GDP for 2014. It was not because the tough medicine of
austerity had "worked," as some now disingenuously claim, but because it
basically came to an end.

There are always many factors that affect growth, but the effect of the
austerity measures on Greece was so severe that, as a matter of national
income accounting, it is clear that the fiscal austerity drastically
worsened and prolonged the country's recession.

Greece has also completed the economic adjustment that its creditors have
put forth as a main objective of austerity. Import spending has fallen by
36 percent — one of the largest adjustments in the world — and its current
account and actual primary budget balance are now in surplus. No one can
credibly argue that the country is living beyond its means.

Young Greeks hope a Syriza victory in Sunday's election will save their
lost generation. Read more here.

But the recovery is still too weak, slow, and fragile to take Greece out of
the mass unemployment that the European authorities have unnecessarily
inflicted on it. Unemployment is currently at 25.8 percent, and nearly
double that for youth. IMF projections — almost all of which over the past
five years have been overly optimistic — estimate that unemployment will
still stand at nearly 16 percent in 2018.

To bring the country to full or even reasonable levels of employment, the
new government will have to enact a fiscal stimulus. Tsipras proposes
rolling back some of the regressive changes implemented over the past few
years, like minimum wage cuts and the removal of collective bargaining
rights. He also wants to renegotiate the country's oversize debt, which is
currently more than 170 percent of GDP. It has worsened drastically from
115 percent of GDP in May 2010, when the first IMF agreement was signed and
many of us warned that austerity was the road to ruin.

The people of Greece have spoken, a government has been formed, and now the
ball is in the court of the European authorities. They will have to decide
whether they have accomplished enough in terms of restructuring eurozone
economies by chipping away at the welfare state, reducing labor's
bargaining power, cutting healthcare spending (by 40 percent in Greece),
and generally constructing a more unequal society. For years now, European
authorities have been using the crisis to force the governments of more
troubled member nations to accept economic changes that the electorates of
these countries would never vote to approve. That is the main reason that
these economic troubles have gone on for so long.

In photos: Four years of Greece's great depression. Read more here.

It is a dilemma for the advocates of austerity, because if they give in to
Syriza, Spain could be next. The leftist Podemos party, which rose from its
founding to lead opinion polls in just the past year with a program similar
to Syriza's, could benefit greatly from a successful Syriza administration.
Spain's economy is more than six times larger than that of Greece.

If the European authorities refuse to bargain with Syriza, there is a risk
that Greece defaults and ends up abandoning the currency and monetary union.

Contrary to popular belief, the authorities do not fear that a Greek exit
could cause a serious financial crisis of the euro. The ECB can create
money like the US Federal Reserve, and has all the firepower it needs to
make sure that a Greek exit would not cause serious damage to the eurozone
financial system. ECB President Mario Draghi proved this in July 2012 when
he brought an end to the financial crisis of the eurozone — and doubts
about the survival of the single-currency bloc itself — by merely stating
that he would do "whatever it takes" to defend the euro.

The real fear is that Greece might leave the currency and, after weathering
the fight of capital and an initial crisis, recover much more quickly than
the rest of Europe, prompting other governments to also want to leave the
euro. The entire currency union could be threatened. Bluffs and bluster
fill the financial press at the moment, but the smarter people in Brussels
and Frankfurt understand this reality, and will want to make some
concessions to the new government in Greece.

Either way, this is the beginning of the end of the eurozone's long
nightmare.

Mark Weisbrot is co-director of the Center for Economic and Policy Research
in Washington, DC. He is also president of Just Foreign Policy. Follow him
on Twitter: @MarkWeisbrot

===

Robert Naiman
Policy Director
Just Foreign Policy
www.justforeignpolicy.org
naiman at justforeignpolicy.org
(202) 448-2898 x1
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