“For the proposition that supply creates its own demand, I shall substitute the proposition that expenditure creates its own income” (JM Keynes Collected Writings, Volume XXIX, p81)
G20 Finance Ministers met in Huangzhou, China recently and refused appeals from both the IMF and the OECD for “urgent collective policy action” that focussed “fiscal policies on investment-led spending”. Instead the world’s finance ministers concluded that “it’s every country for themselves”.
Keynes’s simple proposition is compelling: that expenditure will expand national (and international) income (including tax income) and thereby reduce the deficit. But it is a proposition that is anathema to OECD politicians, their friends in the finance sector and their advisers. Instead they adhere stubbornly to the antiquated classical economics embodied in Say’s Law. Continue reading
Yesterday’s Guardian revealed a trio of leaked documents from the International Monetary Fund, the European Central Bank, and the European Union that revealed the true extent of Greece’s debt crisis. The documents – written by the tripartite collective commonly known in Greece and now much of the world as the troika – revealed that the institutions are not only aware that Greece’s 320 billion euro debt is unsustainable, but that even if the Greeks adopted the newly proposed memoranda of understanding, there is no chance the policies proposed would go anyway in clearing the debt. Instead, they propose ratcheting up Greece’s austerity by another notch, increasing the torture of a nation which has already lost 11,000 of their people to suicide as a result of the internationally-imposed austerity programme of the past five years.
In Greece, debt means death. As a result of the troika’s programmatic demands, upon which a steady flow of capital to the Greek financial system is reliant, a quarter of the Greek economy is dead. Unemployment has spiked to levels higher than that of the pre-war slump of the 1930s, with youth unemployment particularly high at 60%. As the state is worn down, and the protections it gave evaporating into the air with each moment that austerity continues, civilisation steadily collapses around the Greek people. Social unrest is high, the police have been infiltrated by the forces of the far right, with half of police officers voting for the openly fascist Golden Dawn in the 2012 general election. Wages drop by the day, basic necessities are unaffordable to the poorest of Greeks, with solidarity networks fuelled by hard working militants, young and old, springing up to ameliorate the worst effects of the crisis where once the state would have intervened. Continue reading
The bullying by Greece’s creditors continues. The latest ploy is to try, unilaterally, to interfere in Greece’s internal politics by re-defining the terms and purpose of Sunday’s referendum. It is patently clear that Tsipras called the referendum to ask the Greek people whether they accepted the latest bailout terms laid down by the creditors, yet the Eurozone 3 – Merkel, Hollande, and Juncker – are now claiming, on no evidence at all, that the referendum is about whether or not Greece wishes to stay in the Euro. It is no such thing. The technical question Greeks have to answer doesn’t even mention the single currency. The Eurozone leaders clearly fear that Syriza will win the referendum, and this clumsy attempt at interference is clearly designed to blackmail Greek voters into accepting the latest terms for a bailout extension. It won’t work.
The Eurozone line is that these bailout terms are final and there’s nothing further on offer. But of course that’s not true. They would say that, wouldn’t they? This is an extremely tense negotiation reaching its climax, and the participants will lay down conditions to try by any means to gain a settlement on their terms, saying for good measure that it’s their last offer, only to retreat to new terms and a new offer if their ‘final’ offer is rejected. In this case the cat is already out of the bag. The European Commission stated yesterday – for the first time in this long-drawn-out crisis, that it wanted to offer Greece debt relief. That is precisely what Tsipras has been demanding for 5 months throughout the stalemated negotiations. So why wasn’t this offered 5 months ago, and this whole crisis could have been averted?
It wasn’t offered then, and is only being offered now, because the most powerful interests within the Eurozone – the hardliner Merkel and the German banks – were determined to enforce their own principles of ordoliberalism on a compliant European economy, and thought they had the muscle to do so. It is only now when they fear that Tsipras’ latest move means they have lost control of the negotiations that they are hinting in the background that there could after all be a further compromise. Their reason of course is not concern about Greece which has suffered a 25% shrinkage of the economy comparable only to the Great Depression in the US in the 1930s, but rather about the future of their pet project, the Euro, which is the basis of German hegemony in Europe because in the long term no other country in the Eurozone can match German productivity, yet is precluded from regaining equilibrium via interest rate and exchange rate changes.
If the long-term unviable Euro is to survive, it must respect democracy equally, or more than, market power and in the immediate short-term re-open negotiations on the essential condition of a partial write-down of Greek debt (which currently at 180% of GDP even the IMF has pronounced is unmanageable) to a level consistent with economic growth (120% of GDP or below).
The IMF has placed a road-block in the way of a deal with the Greek government and it remains unclear whether any agreement can be reached. The prior agreement which the IMF rejected was itself already very onerous. But the IMF wants to shift the burden of paying for the crisis away from taxes on business and the better-paid towards more cuts in social protection. This is an insupportable burden as net median household incomes are already below €8,000 a year. Many multi-member households without work subsist solely on state and public sector pensions. Continue reading
The IMF is the last place that one would expect to hear the argument being made that inequality has gone far too far. So the recent detailed research from the citadel of capitalism has to be taken seriously. What they found was that raising the income share of the poorest fifth of the population increases growth by as much as 0.38% over 5 years, whilst increasing the income share of the richest fifth by 1% actually reduces growth by 0.08%. On that basis the argument that enriching the rich yet further benefits everyone collapses. Trickle-down which both Thatcher and Blair devoutly believed in is therefore seen for what it is – merely a rationalisation to justify their hold on power and wealth. Continue reading