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Greece: not “reforms” but a triumph of ideology over common sense

Greek Crisis, based on photo by Dave HoggAs the Greek crisis unfolds, we are constantly informed by the world’s media that the European power-brokers will agree to a further bail-out only if Greece implements a programme of “reforms”. Most people will see this as confirming their understanding of what the crisis is about. The Greeks, it seems, have mismanaged their economy; so what could be more sensible and reasonable than to insist, as a condition of any further help provided to them, that they should improve their economic management? And, if they refuse to “reform”, surely they have no one to blame but themselves?

The constant use of the term “reforms”, however – no doubt seen by the media as a neutral and objectively accurate term – is nevertheless grossly misleading. It reflects a view of the crisis that is very much that taken by the Germans and their client states, but is a long way removed from what is really at issue. It has become a real obstacle to a clear view of the causes of the crisis and of the only realistic way forward.

When the global financial crisis (for which the Greeks had little or no responsibility) exposed the frailty of the Greek economy, and the level of indebtedness that they had been allowed and encouraged to take on as the price of living with the euro, Greece found that they were unable to repay their creditors. Those creditors agreed to bail them out, but on condition that they put in place a programme of “reforms”. The Greeks had little option but to agree.

Some of the “reforms” were long overdue, and addressed some of the obvious failings – the inefficiencies, the slackness, the unduly generous social provision, the tax evasion – that had characterised Greek economic management. But many others were designed to impose on Greece the kind of austerity measures that the euro zone leaders had insisted on as a response to recession and which – it is now clear – have condemned the European economy as a whole to a prolonged stagnation.

Those measures had a particularly direct and damaging effect on the Greek economy. Public spending was cut, pensions and other benefits reduced, tight monetary policy introduced, bank lending fell. As many warned at the time, it was hard to see how a weak and uncompetitive economy that had run up large debts and that was now required to take on the burden of repaying them could hope to do so if they were at the same time obliged to adopt policies that ensured that the economy got smaller.

And so it has proved. The entirely predictable outcome of the “reforms” made by the Greeks has been that their economy is now 25% smaller than it was and unemployment has soared. Their ability to service and repay their debts is much reduced. But none of that seems to worry their taskmasters; they insist on yet another round of further “reforms” as the price of extending the bail-out.

The extraordinary aspect of this is that the course insisted upon by the creditors is not even in their own interests. The “reforms” they demand can only reduce still further the Greeks’ ability to repay what they owe. With the best will in the world, the Greeks will find that – after a few more years of “reforms” – they are yet deeper in the mire.

So what is really in play here? The answer lies in ideology. There are, after all, many precedents in recent times for what the Canadian writer, Naomi Klein, in her influential book The Shock Doctrine, has described as “disaster capitalism”. Countries faced with natural disasters or political paralysis or economic collapse, and that need as a result to ask the IMF or some other agency for help, have all too often been required to put in place what are usually called “structural reforms” as the price of that help.

So, countries like Chile, recovering from the turmoil of the Pinochet dictatorship, Argentina, Bolivia, Uruguay, Poland, and Russia, have all found themselves obliged to implement policies of privatisation, deregulation and savagely reduced public spending in order to qualify for help. In each case, the results have been the same – economies where inequality widens rapidly, the fat cats make large fortunes overnight and ordinary people suffer poverty and unemployment.

It is not just economies facing specific crises that have fallen victim to “disaster capitalism”. When the Japanese economy stagnated in the 1990s after several decades of rapid growth, the remedy prescribed by western experts was “structural reform”. But, as Professor Richard Werner of Southampton University and a former Shimomuran Fellow with the Bank of Japan has demonstrated, the nostrums so dear to the hearts of neo-classical economists failed over more than two decades to solve the problems but instead entrenched them. They have now been abandoned by Shinzo Abe’s government.

What we are witnessing in Europe is, in other words, a triumph of ideology over common sense and constantly repeated experience. As always, the price for these mistakes is paid by ordinary people. Reforms? I don’t think so.

This article first appeared at Bryan’s own blog

Image credit: Greek Crisis, based on photo by Dave Hogg

8 Comments

  1. Robert says:

    Massive issue for the Greeks now do the people fight on or do they give up.

    Obviously they voted in a politician who played them like a fish at the end of a political line.

  2. Robert says:

    1/3 of Greek assets will now be controlled by the EU removing the Greek people from controlling their own country I’d say without looking at the rest this is massive and means that I will now be voting out of the EU.

  3. David Ellis says:

    Common sense would suggest that imposing austerity across Europe is an insane thing to do as it is driving us into a recession from which it will never recover but of course we live in a class system so what is empirically common sense to the observer blind to class struggle would amount to social suicide for the ruling capitalist elites. They are calling in their markers, liquidating all assets, destroying centuries of accumulated wealth following a thirty year credit bubble that fueled the greatest consumer boom the world has ever seen. The piper now needs to be paid and the cost of payment is the greatest redistribution of wealth from poor to rich in human history. Humanity’s future is walking out the door just as the children of Hamlyn were taken away never to be seen again.

  4. Tim Barlow says:

    David
    Damn right. And Osborne is playing the pipes! Regarding the Population Problem, everything for the 1% is going exactly to plan. Kid the people (the Greeks, or British consumers, for that matter – it works either way) that they can afford the “good life”, load ’em up with unrepayable debt, then cut them off at the knees. Economic destruction is so much cleaner than, I dunno, releasing a virus or something…

    THAT is why, more than ever, we need Jeremy Corbyn leading the Labour party, at least making a stand against Austerity. Better to die on your feet, than live on your knees and all that.

  5. Mervyn Hyde says:

    Brilliant comments on this thread, with little to add except that this forty year trek was started by Friedman and Hayek and is culminating in the TTIP treaty which ends all pretence of democratic government.

    If we don’t make a stand now, then what kind of future is there?

  6. Barry Ewart says:

    Yes the World economy has a severe stomach problems but with austerity (cuts) the Neo-Liberal imbeciles only have laxatives!
    They haven’t a clue what to do.
    But we are on the side of the majority – the billions who have to sell their labour to live know what to do.
    Have state led public investment aided by Windfall taxes on big business, a significant financial transaction tax (and we need commonn global taxes on TNCs) and tax the rich -these are modest proposals – the rich and powerful legally nick the surplus labour of he working billions & we are getting some of this back – the terrible need in the World today ( billions on less than 2 dollars a day, global poverty) should bot be a threat but a global opportunity – address these needs and generate an economic and global human feel good factor and the private sector will pour in behind the state-led drive.

  7. Barry Ewart says:

    By the way it was both refreshing and moving to hear Jeremy Corbyn said he would vote against the welfare caps, another reason he has my support!

    1. Robert says:

      Husting to day all three Corbyn and Cooper and Burnham all stated they would be voting NO to more cuts only one said they were backing it and that is the Progress drone Kendall, what a shame the ex editor at labourlist is the one running her campaign I suspect if she wins he will get a seat.

      Labour leadership contender Liz Kendall has defended Harriet Harman after she said she would not oppose some government welfare cuts, including the cap on household benefit income. She is the only one of the four Labour leadership contenders to defend its acting leader. Speaking on the Daily Politics, Frank Field MP has also defended Harman, saying he would be surprised if most of the Labour parliamentary party didn’t back her. Harman is expected to tell Labour MPs to abstain on the government’s welfare bill, but not to block it. The Parliamentary Labour Party will meet this evening to discuss/argue about the acting leader’s decision not to oppose bill.

      No wonder the country decided the best right wing party would be the Tories. I getting to think labour just follow.

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