Greek Financial Crisis: The Cruelty of Austerity & The Warning for US

Austerity means that people is [sic] expulsed of their homes. Austerity means that the social services don’t work anymore. Austerity means that public schools have not the elements, the means to develop their activity. Austerity means that the countries have not sovereignty anymore, and we became a colony of the financial powers and a colony of Germany. Austerity probably means the end of democracy. I think if we don’t have democratic control of economy, we don’t have democracy. It’s impossible to separate economy and democracy, in my opinion.
– Pablo Iglesias, leader of Podemos, Spain’s grassroots anti-austerity movement

Austerity is a lie. It is a cruel economic policy that starves economies, puts people out of work, privatizes public services, closes public facilities, eliminates benefits for the needy, and crushes governments with unsustainable debt. And as Iglesias says above, austerity diminishes democracy because the banks hold the economic power– not the people and the governments they elected.

Greece has been suffering under austerity imposed by the European banks since 2010. Instead of growing the Greek economy, austerity has starved it.

Does this sound familiar? Arizonans should pay close attention to the Greek financial crisis because Governor Doug Ducey is leading us down the same road to ruin.

Tea Party States and Greece

Arizona and other red states have been on the austerity path since the financial collapse of 2008-09. People have lost their jobs, their homes, and their health insurance. Instead of helping citizens recover financially, Republican-controlled federal and state governments have imposed austerity and cut unemployment benefits, food stamps, public education, childcare assistance, job training, and many anti-poverty programs. Instead of putting people back to work to grow the economy, these states have laid people off, further starving the economy.

The primary difference between austerity imposed in Greece vs here in the US is that Republican-controlled governments in Arizona, Kansas, New Jersey, Wisconsin, Louisiana, Ohio, and elsewhere are cutting state budgets, services, and employees, but they are also cutting income by doling out unaffordable corporate tax cuts. The Greeks, on the other hand, are trying to pay off billions of dollars in bailout loans provided by the worldwide banking cartel– the same banksters that crashed the world economy and started all of this.

The Greek Hostage Situation

Greece has a 25% employment rate, they have cut their public sector by 40%,  and young college-educated Greeks are leaving the country to find opportunities elsewhere. Greece’s  $267 billion debt is 170% of their Gross Domestic Product (GDP)— up from 130% in 2009– and the percentage continues to rise. Why is the Greek debt a larger percentage of the GDP than it was at the beginning of the global financial crash? Austerity. The austerity measures imposed upon Greece were supposed to help the country bring down their debt. Unfortunately, austerity shrank the Greek economy by more than 25%, making the debt a larger percentage of the economy.

Rejecting austerity, the Greeks ousted its pro-austerity government and elected a left-wing government that vowed to fight European austerity. Alexis Tsipras of the Syriza Party became prime minister in January 2015.

From Democracy Now…

Professor Noam Chomsky told Amy Goodman that the European reaction to the Syriza party was “extremely savage. They made a little bit of progress in their negotiations, but not much. The Germans came down very hard on them… [The Germans] sort of forced them [the Syriza leaders] to back off from almost all their proposals. What’s going on with the austerity is really class war. As an economic program, austerity, under recession, makes no sense. It just makes the situation worse. So the Greek debt, relative to GDP, has actually gone up during the period of—which is—well, the policies that are supposed to overcome the debt. In the case of Spain, the debt was not a public debt, it was private debt. It was the actions of the banks. And that means also the German banks. Remember, when a bank makes a dangerous, a risky borrowing, somebody is making a risky lending. And the policies that are designed by the troika, you know, are basically paying off the banks, the perpetrators, much like here. The population is suffering. But one of the things that’s happening is that the—you know, the social democratic policies, so-called welfare state, is being eroded. That’s class war. It’s not an economic policy that makes any sense as to end a serious recession. And there is a reaction to it—Greece, Spain and some in Ireland, growing elsewhere, France. But it’s a very dangerous situation, could lead to a right-wing response, very right-wing. The alternative to Syriza might be Golden Dawn, neo-Nazi party.

In a dramatic move, the Greeks voted 61 to 39% to reject austerity measures a week ago in a nationwide referendum. They voted “no” to further budget cuts and tax hikes in exchange for a rescue package from European creditors.

“Today, all of us together turned a bright page in modern European history. We proved that even under the most difficult circumstances democracy cannot be blackmailed. Today, considering last week’s very difficult circumstances, you made a very brave choice. However, I am fully aware that the mandate here is not a mandate to break with Europe, but a mandate to strengthen our negotiation position to seek a viable solution,” Tsipras said on July 6, after the “no” vote.

Only a few days after the vote, Tsipras submitted a bailout proposal including austerity measures that the people voted against.

From Democracy Now...

Greek Prime Minister Alexis Tsipras has submitted a bailout proposal which includes harsh austerity measures, just days after the Greek people overwhelmingly rejected such measures in a historic referendum. The proposal submitted to Greece’s creditors reportedly includes tax increases, pension cuts, a reduction in military spending, and the privatization of public assets. It comes after Tsipras himself had urged the Greek people to reject creditors’ demands for further austerity. In exchange for the reforms, Greece would receive a three-year, $59 billion bailout package. Germany, meanwhile, appears to be yielding to demands to provide at least some measure of debt relief to Greece. 

Why did Tsipras cave? Economist Mark Weisbrot of the Center for Economic and Policy Research called it a “hostage situation,” the Greek banks had been closed for days. What sets this apart from past deals is that Greece is lobbying for debt restructuring — not just new loans to pay off the old ones.

According to Weisbrot, “The main thing, again, is whether they [The Greeks] can get a deal that allows for an economic recovery…This is the ironic thing about it, is that the European authorities have made this mess. The reason they need all this debt relief is because the economy has shrunk by more than 25 percent and greatly reduced their ability to pay. And now, the IMF [International Monetary Fund] is already saying—or the IMF has already acknowledged that the debt is unsustainable.” [Emphasis added.]

“We want a sustainable program, because we want to be in a position to repay the loans that we’ve accepted. And when we ask to reduce the debt, we are asking for that because we want to be able to pay this back. We don’t want to be forced time and time again to accept new loans to pay off the old ones,” Tsipras told the European Parliament on July 8. You’ll see from today’s news that he didn’t get that. [Emphsis added.]

 The Current Deal

This past weekend, European financial and political leaders held two marathon meetings to hammer out the details of the agreement between Greece and its creditors. At the time of this writing, here’s the deal, according to the New York Times…

The agreement he struck with other European leaders early Monday after a contentious all-night bargaining session would give Greece the chance to receive its third international bailout in five years, a package of as much as 86 billion euros, or $96 billion, as well as easier repayment terms on some of its existing debt of more than 300 billion euros and a short-term economic stimulus plan.

But it would require Greece to swallow a wide array of measures, including pension cuts and tax increases, and effectively subject itself to intensive international oversight in order to qualify for the aid.

Note that this deal does not include debt relief or restructuring, but it does include draconian austerity measures that will hurt the Greek people. Some are calling it a coup. From the Huffington Post…

Monday’s deal between Greece and its creditors makes a mockery of the ruling Syriza government’s democratic mandate for economic relief, which was reinforced by a July 5 referendum vote in which Greek voters rejected a deal that was far more moderate than the current one. The popularity of the hashtag #ThisIsACoup on Sunday expressed the view of many Greeks and citizens around the world that democracy had died in the negotiating room at the hands of Greece’s creditors.

Within just a few years of Fukuyama’s pronouncement, protesters in Western nations and governments and people in the global South began suggesting that the new democratic system was, in the end, perhaps not so democratic. The International Monetary Fund and other global creditors began writing laws, mostly for Third World countries, enforcing what they called “structural adjustment” — which was bloodless bureaucratic language referring to the pillaging of a nation’s assets and resources, coupled with the gutting of its social services, pensions and other advances that came in the 20th century. [Emphasis added.]

Is Sanders Our Tsipras?

For years, the citizens of Europe have been protesting against austerity. In Spain and Greece, leftist political groups have risen to power, promising to end austerity and help the people.

In the US, there have been spotty protests against budget cuts and austerity, but the people have not been as vocal as they have been in Europe… until now.

Self-proclaimed socialist and Democratic Party candidate for President Bernie Sanders has been drawing record crowds to his stump speeches across the country– 10,000 in Madison, Wisconsin; 5,000 in Minnesota; 700 in Des Moines; 1000 in Keene, NH.

Like the European leftists, Sanders rails against austerity, denounces budget cuts that hurt the poor and the middle class, and promotes affordable education, pay equity,  and job creation. From his Madison speech (as transcribed by Democracy Now)…

We can provide healthcare to every man, woman and child as a right. We can make certain that every person in this country can get all of the education he or she needs, regardless of the income. We can create millions of decent-paying jobs. We can have the best child care system in the world. In the last 30 years, there has been a huge redistribution of wealth from the middle class and working families to the top one-tenth of 1 percent. Our job is to reverse that, redistribute wealth back into the hands of working families.

After the Greeks voted to reject austerity, Sanders released a statement saying, “I applaud the people of Greece for saying ‘no’ to more austerity for the poor, the children, the sick and the elderly. In a world of massive wealth and income inequality, Europe must support Greece’s efforts to build an economy which creates more jobs and income, not more unemployment and suffering.”

Sanders is right. Austerity is a cruel economic policy that has done nothing but create unnecessary financial distress for citizens and local/state governments, while fattening the 1%. We have have the wealth and the means to end austerity, but we lack foresight and political will to do so. As long as the moneyed class can buy elections in the US with unlimited amounts of cash and install Wall Street-friendly politicians in Congress and State Legislatures, real change will be nearly impossible.

New York Times economist Paul Krugman warns, “The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.” [Emphasis added.]

Austerity is a lie. There’s plenty of money. The problem is that the money is invested on Wall Street– not Main Street.