Wednesday, May 29, 2013

Why has austerity led to disaster in Greece?

Greece is in sharp economic free-fall. “20% real decline since 2008” (as reported on 30th April 2013). In 2012 the real value of government revenues and spending reached a ten-year low.  However, because of the sharp economic contractions, government revenues and spending as a share of GDP reached an all-time high (44.7% of GDP and 54.8% of GDP respectively).  The high level of government spending is speculated by some to have nothing to do with interest rates…social benefits are noted as the highest portion of Greece’s government expenditure (46% of primary spending in 2012) whilst wages represented 25%, goods and services 9.8% and ‘other items’ (includes recapitalisation of Greece’s banks) 19%.

Maria Markantonatou describes the terrible social consequences of a financial austerity program that hasn't solved the national fiscal and debt problems after all.  Unemployment rose to 25.4% in August 2012 whilst those still in paid employment experienced a very rapid deterioration in their pay and conditions.  Jobs have become very insecure and many do not provide enough income for basic sustenance. Homelessness increased by 25% within a two year period (2009-2011). Others report that children and families are going hungry and long queues in Greece for food give-aways are viewed on recent television reports.

Markantonatou has postulated on the reasons why austerity programs were introduced in the first instance.  She writes that:

·       national economies are being treated as banks,

·       banks are regarded as the most important of social institutions,

·       there's been a retreat of regulation from the mid 1970s,

·       basic social provision has been financialised (social security and health insurance),

·       a belief that lower wages makes a nation more competitive and attracts investors,

·       states have prioritised the strengthening of the global financial system and its rescue [over a wide range of other solutions.]  See:

Diagnosis, Treatment, and Effects of the Crisis in Greece.  A “Special Case” or a “Test Case”?

States now cede their ability to create currency and then, having no control over the levers of finance, attempt to bail out large corporations.  How can this scenario be interpreted other than a radical handover of sovereignty to unelected and unaccountable entities.  Or is it that states are, in the absence of justice, simply "vast systems of robbery".

Money or Power, or Cheap Energy?

"…The international monetary system also now faces a clear and present danger: currency wars. Virtually every major country is seeking depreciation, or at least non-appreciation, of its currency to strengthen its economy and create jobs....The “target list” of manipulators for priority policy response identified... includes China, Denmark, Hong Kong, Korea, Malaysia, Singapore, Switzerland and Taiwan, which accounted for half the estimated amount of unjustified intervention in 2011 ....Japan should be put on a “watch list,” ... Most of the remaining intervention is by major oil exporters, both members of OPEC led by Saudi Arabia and non-members such as Norway and Russia. ...

....John Connally [four days after the Nixon shocks of August 1971 when a global currency war led the US to abandon the gold standard]:

“I appre­ciate the advice from you gen­tlemen and want to share my own phi­los­ophy with you before we break up: the for­eigners are out to screw us and our job is to screw them first. Thank you and goodbye.”
From C Fred Bergsten's 'Currency Wars, the Economy of the United States and Reform of the International Monetary System'

[Common denominator 1971, 2013:  Peaks in oil production.]