{"id":54651,"date":"2015-03-09T12:00:07","date_gmt":"2015-03-09T12:00:07","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=54651"},"modified":"2015-05-05T21:26:01","modified_gmt":"2015-05-05T20:26:01","slug":"turning-the-european-debt-myth-upside-down","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2015\/03\/turning-the-european-debt-myth-upside-down\/","title":{"rendered":"Turning the European Debt Myth Upside-Down"},"content":{"rendered":"

The European debt crisis has little to do with poor budgeting and everything to do with crony capitalism.<\/em><\/p>\n

Myths are dangerous because they rely more on cultural memory and prejudice than facts.<\/p>\n

And behind the current crisis between Greece and the European Union (EU) lies a fable that bears little relationship to why Athens and a number of other countries in the 28-member organization find themselves in deep distress.<\/p>\n

The tale is a variation of Aesop\u2019s allegory of the industrious ant and the lazy, fun-loving grasshopper. The \u201cnorthern countries\u201d \u2014 especially Germany, the Netherlands, Britain, and Finland \u2014 play the role of the ant, and Greece, Spain, Portugal, and Ireland the part of the grasshopper.<\/p>\n

The ants are sober and virtuous, while the grasshoppers are spendthrift, corrupt lay-abouts who have spent themselves into trouble and now must pay the piper.<\/p>\n

The problem is that this myth bears almost no relationship to the actual roots of the crisis or what the solutions might be. And it perpetuates a fable that the debt is the fault of individual countries rather than a serious crisis<\/a> at the very heart of the EU.<\/p>\n

Whose Debt?<\/strong><\/p>\n

First, a little myth busting.<\/p>\n

The European debt crisis goes back to the end of the roaring \u201890s, when the banks were flush with money and looking for ways to raise their bottom lines. One major strategy was to pour money into real estate, which had the effect of creating bubbles, particularly in Spain and Ireland.<\/p>\n

From 1999 to 2007, bank loans for Irish real estate<\/a> jumped 1,730 percent, from 5 million euros to 96.2 million \u2014 more than half the country\u2019s GDP. Housing prices increased 500 percent. \u201cIt was not the public sector but the private sector that went haywire in Ireland,\u201d concludes<\/a> Financial Times<\/em> analyst Martin Wolf.<\/p>\n

Spain, which had a budget surplus and a low debt ratio, went through much the same process, and saw an identical jump<\/a> in housing prices: 500 percent.<\/p>\n

In both countries there was corruption, but it wasn\u2019t the penny ante variety of tax evasion or profit skimming. Instead, politicians \u2014 eager for a piece of the action and generous \u201cdonations\u201d \u2014 waved zoning rules, sidestepped environmental regulations, and cut sweetheart tax deals. Hundreds of thousands of housing projects went up, many of them never to be occupied.<\/p>\n

Then the American banking crisis hit in 2008, and the bottom fell out. Suddenly, the ants were in trouble.<\/p>\n

But not really, because the ants have a trick: they gamble and the grasshoppers pay. As Nobel Prize-winning economist Joseph Stiglitz<\/a> points out, Europe (like the United States) moved its gambling debts \u201cfrom the private sector to the public sector \u2014 a well-established pattern over the past half-century.\u201d<\/p>\n

Fintan O\u2019Toole, author of Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger<\/em>, estimates that to save the Anglo Irish Bank, Irish taxpayers shelled out $30 billion euros, a sum that was the equivalent of the island\u2019s entire tax revenues for 2009. To raise the money, the European Central Bank \u2014 which, along with the International Monetary Fund and the European Commission, makes up the \u201cTroika\u201d \u2014 strong-armed<\/a> Ireland into adopting austerity measures that tanked the country\u2019s economy, doubled the unemployment rate, increased consumer taxes, and forced many of the country\u2019s young people to emigrate<\/a>. Almost half of Ireland\u2019s income tax now goes just to service the interest on its debts.<\/p>\n

And poor Portugal. It had a solid economy and a low debt ratio, but currency speculators drove up interest rates on borrowing beyond what the government could afford, and the European Central Bank refused to intervene. The result was that Lisbon was forced to swallow a \u201cbailout\u201d laden with austerity measures that in turn torpedoed its economy.<\/p>\n

In Greece\u2019s case, too, while the country has no shortage of wealthy tax evaders, the myth of profligacy falls flat. Germany, Sweden, and many other European countries spend more of their GDP on services<\/a> than does Athens. Greece spends 44.6 percent of its GDP on its citizens, which comes in just below Germany\u2019s 46 percent and well beneath Sweden\u2019s 55 percent.<\/p>\n

And as for lazy: Greeks work 600 hours more a year than Germans.<\/p>\n

According to economist Mark Blyth<\/a>, author of Austerity: The History of a Dangerous Idea<\/em>, Greek public spending throughout the 2000s was \u201creally on track and quite average in comparison to everyone else\u2019s.\u201d Its so-called flood of \u201cpublic sector jobs\u201d consisted of \u201c14,000 over two years.\u201d All the talk of the profligate Greek government is \u201ca lot of nonsense\u201d and just \u201cpolitical cover for the fact that what we\u2019ve done is bail out some of the richest people in European society and put the cost on some of the poorest.\u201d<\/p>\n

There was a \u201cscore\u201d in Greece. However, it had nothing to do with free spending. Rather, it was a scheme<\/a> dreamed up by Greek politicians, bankers, and the American finance corporation, Goldman Sachs.<\/p>\n

Greece\u2019s application for EU membership in 1999 was rejected because its budget deficit in relation to its GDP was over 3 percent, the cutoff line for joining. That\u2019s where Goldman Sachs came in. For a fee<\/a> rumored to be $200 million (some say three times that), the multinational giant essentially cooked the books to make Greece look like it cleared the bar. Then Greece\u2019s political and economic establishment hid the scheme until the 2008 crash shattered the illusion.<\/p>\n

The Grasshoppers Strike Back<\/strong><\/p>\n

The Troika puts the blame for the debt crisis on the spendthrift ways of Greece, Ireland, Spain, and Portugal, but it was the casino mentality of private investors \u2014 backed by the banks \u2014 that brought on the current catastrophe.<\/p>\n

In short, it was the busy little ants, not the fiddling grasshoppers that brought down the \u201cdistressed four.\u201d<\/p>\n

American, German, French, and Dutch banks had to know that they were creating an unstable real estate bubble \u2014 a 500-percent jump in housing prices is the very definition of the beast \u2014 but kept right on lending because they were making out like bandits.<\/p>\n

When the bubble popped and Europe went into recession, Greece was forced to apply for a \u201cbailout\u201d from the Troika. In exchange for 172 billion euros, the Greek government instituted an austerity program that saw economic activity decline 25 percent and unemployment rise to 27 percent \u2014 and to over 50 percent for young Greeks. The cutbacks slashed pensions, wages, and social services, and drove 44 percent<\/a> of the population into poverty.<\/p>\n

Virtually all of the \u201cbailout\u201d funds \u2014 89 percent \u2014 went to the banks that gambled in the 1999 to 2007 real estate casino. What the Greeks \u2014 as well as the Spaniards, Portuguese, and Irish \u2014 got was misery.<\/p>\n

There are other EU countries, meanwhile \u2014 including Italy and France<\/a> \u2014 that aren\u2019t quite in the same boat as the \u201cdistressed four,\u201d but are nonetheless under pressure to bring down their debt ratios.<\/p>\n

But what are those debts?<\/p>\n

This past summer, the Committee for a Citizen\u2019s Audit on the Public Debt issued a report on France<\/a>, a country that is currently instituting austerity measures to bring its debt in line with the magic \u201c3-percent\u201d ratio. The Committee \u2014 which refers to itself as a \u201ccollective\u201d \u2014 was launched in January 2012 following a French petition drive that gathered almost 60,000 signatures. Associated with the Party of the European Left, it\u2019s a polyglot organization with an international focus. \u201cCollectives\u201d are busy all over the world lobbying for debt audits.<\/p>\n

What the committee concluded was that 60 percent of the French public debt was \u201cillegitimate.\u201d<\/p>\n

More than 18 other countries, including Brazil, Portugal, Ecuador, Greece, and Spain, have done the same \u201caudit.\u201d And in each case, they found that increased public spending was not the cause of deficits. From 1978 to 2012, French public spending actually declined by 2 GDP points.<\/p>\n

The main culprit in the debt crisis was a fall in revenues resulting from massive tax cuts for corporations and the wealthy. According to Razmig Keucheyan<\/a>, sociologist and author of The Left Hemisphere<\/em>, this \u201cneoliberal mantra\u201d that was supposed to increase investment and employment did the opposite.<\/p>\n

The second major reason, according to the debt audit study, was the increase in interest rates that benefit creditors and speculators. Had interests rates remained stable during the 1990s, debt would be significantly lower.<\/p>\n

Keucheyan argues that tax reductions and interest rates are \u201cpolitical decisions,\u201d and that \u201cpublic deficits do not grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes to legitimize austerity policies that will allow the transfer of value from the working classes to the wealthy ones.\u201d<\/p>\n

The International Labor Organization<\/a> recently found that wages have, indeed, stalled or declined throughout the EU over the past decade.<\/p>\n

The audit movement calls for repudiating debt that results from \u201cthe service of private interests\u201d as opposed to the \u201cwellbeing of the people.\u201d In 2008, Ecuador canceled 70 percent of its debt as \u201cillegitimate.\u201d<\/p>\n

How this plays out in the current Greek-EU crisis is not clear. The Syriza government is not asking to cancel the debt \u2014 though it would certainly like a write down \u2014 but only that it be given time<\/a> to let the economy grow. The recent four-month deal may give Athens some breathing room, but the ants are still demanding austerity<\/a>, and tensions are high.<\/p>\n

What seems clear is that Germany and its allies are trying to force Syriza into accepting conditions that will undermine its support in Greece and demoralize anti-austerity movements in other countries.<\/p>\n

Exploding the Myth<\/strong><\/p>\n

The U.S. can play a role in this \u2014 President Obama has already called for easing<\/a> the austerity policies \u2014 through its domination of the IMF<\/a>.<\/p>\n

By itself, Washington can outvote Germany, the Netherlands, and Finland combined, and could exert pressure on the two other Troika members to compromise. Will it? Hard to say, but the Americans are certainly a lot more nervous about Greece exiting the Eurozone than Germany is.<\/p>\n

The key to a solution is exploding the myth.<\/p>\n

That has already begun. Over the past few weeks, demonstrators<\/a> in Greece, Spain, Italy, Germany, Portugal, Great Britain, Belgium, and Austria have poured into the streets to support Syriza\u2019s stand against the Troika. \u201cThe left has to work together having as its common goal the elimination of predatory capitalism,\u201d says Maite Mola<\/a>, vice-president of the European Left organization and member of the European parliament. \u201cAnd the solution should be European.\u201d<\/p>\n

In the end, the grasshoppers might just turn Aesop\u2019s fable upside down.<\/p>\n

___________________________<\/p>\n

Foreign Policy In Focus columnist Conn Hallinan can be read at\u00a0 www.dispatchesfromtheedgeblog.wordpress.com<\/a>\u00a0 and\u00a0<\/em><\/p>\n

www.middleempireseries.wordpress.com<\/a><\/em><\/p>\n

Go to Original \u2013 fpif.org<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The European debt crisis has little to do with poor budgeting and everything to do with crony capitalism. Myths are dangerous because they rely more on cultural memory and prejudice than facts.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[51],"tags":[],"class_list":["post-54651","post","type-post","status-publish","format-standard","hentry","category-europe"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/54651","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=54651"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/54651\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=54651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=54651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=54651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}