Beyond debt speculation and austerity
João Romão (Portugal), Sol Trumbo (Spain), Dimitris Pavlopoulos (Greece)
We are witnessing an apparently endless crisis. What started three years ago in the subprime mortgage market in the US has now spread to such an extent that the unity of Europe as a political and economic entity is questioned. Even the continuity of the Eurozone and the existence of the Euro as a common currency is at stake. The debt of the countries has become the hottest economic topic, overshadowing previous superstars such as the oil price.
Currently, the media stresses the urgency of taking important decisions within the Eurozone. The Eurobonds and the role of the European Central Bank are under discussion. European politicians are asking the IMF to support the European stability fund (EFSF), which in itself is nothing more than an enormous amount of money with as only purpose the securing the repayment of the unsustainable sovereign debt of some European countries. All the attention of the EU is on whether the Southern European countries will be able to repay their commitments to the international creditors. They present the sovereign-debt crisis as a result of mismanagement of public finances, corruption, low productivity, the excessively-large public sector and the extremely generous welfare state of the South European countries. The media affirm repeatedly that South Europeans must apply harsh austerity measures because they were living above their real capabilities. As the media say, now that “the party is over”, they have to follow the demands of the North European governments, the IMF, the European Central Bank and the European Commission in order to receive ‘help’ in the form of new loans that will allow them to roll-over their debt.
But, is it true that South Europeans are living above their capabilities? Are they enjoying better welfare benefits that their northern neighbors? A simple glance at the official OECD statistics reveals that in 2010 Greeks worked on average 2109 hours a year, Portuguese 1714 hours and Spanish 1663 hours, while the Germans 1419 and the Dutch 1377 hours. Greek males retire on average at the age of 61.9, Spanish males at 61.4 and Portuguese at 65, while the Dutch at 62.1. The social expenditure as percentage of GDP is 25% in Greece, 23% in Portugal and 21% in Spain, while the EU-15 average is 27%. This data shows a very different picture of what is affirmed in the media. It demonstrates that the problem of the South European economies is not a too generous welfare state. In contrast, perhaps the problem is the weak and incomplete welfare state of the South European Economies is one of the reasons of their current economic stagnation.
By looking at the consequences of the application of austerity measures in the Southern European countries countries we can evaluate whether these measures have contributed to overcome the current crisis. The first measure that was applied by the governments was the injection of hundreds of billions to their domestic banks. The next step for the Greek government and later for the Portugese and Spanish government was the application of a traditional austerity package that was designed by the IMF with the support of ECB and the European Commission.
In Southern European countries, tens of thousands of civil servants are being laid off while the remaining see their salaries being severely cut. Welfare programs and benefits including pensions are abolished or severely cut,. Huge privatization in prices way below what we would recognize as ‘market prices’ have already started in key public enterprises, such as water supply, health care and public education. All these measures are applied in countries that already had an low level of public expenditure compared with their northern European counterparts. Indirect taxes on consumption including energy and food have been increased dramatically without any progressive element with respect to income,.
These policies that are given euphemistically the name “adjustment” or “austerity” are not only unfair as they affect the weakest members of society but are also unrelated of the current situation of economic disaster. These measures are just unable to mitigate the effects of the crisis.During an economic recession, while economic activity and consumption are low, the government instead of increasing, reduces public investments and expenditures. This creates a spiral negative effects in economic growth. These results are already visible: as a consequence of these policies, the Portuguese GDP will decrease with 3% in 2011 while the unemployment rate is reaching 14%. The contraction of GDP in Greece was 3.5% in 2010 and is expected to be at least 5.5% in 2011. In 2010, the Spanish GDP decreased by 0.2%. Although it is expected to grow by 0.7% in 2011, this increase falls clearly short of the necessary growth to reduce unemployment that is expected to reach 23%, the highest of the EU. Furthermore, as the newly elected Spanish government promised the application of the most draconian austerity measures, the situation will only worsen as the Portuguese and Greek cases demonstrate.
In addition to the unfairness and ineffectiveness of these austerity measures, these have been always applied against the will of the population. There was a constant message from the politicians of all the main parties: “We have to calm down the markets”, showing that all economic measures were designed to satisfy not the needs of the people but the needs of the international markets and investors and especially those that had investors in Greed, Portuguese and Spanish sovereign debt.
These austerity measures are concentrating even further the wealth among the richest 1% that benefits from the speculative financial operations and the privatizations. On the other hand these austerity measures are producing poverty and misery in Southern Europe and it is only a matter of time until the people in Northern European countries experience the same consequences. The increasing inequalities in the Dutch society (the Gini Coefficient calculated by Eurostat increased from 26 in 1999 to 27,2 in 2009) as well as the level of unemployment and employment precarity among the young Dutch are clear signs of this tendency: unemployment rate for the population under 25 raised from 5% in 2001 to 8,7% in 2010, according to Eurostat (this is the lowest value for the EU but still represents a very relevant increment); on the other hand, part-time workers were 42,2% of total employment in 2001 and 48,9% in 2010 (from far, the highest value in the EU) and workers with temporary contracts were 14,3% in 2001 and 18,5% in 2010 (in the European Union, only Poland, with 27,3%, and Portugal, 23%, had higher values). This employment precarity affects mostly the young population, which is extremely exposed to the negative consequences of a possible economic recession.
Furthermore, the Dutch households are the most indebted in the Eurozone. Their debt amounts to more than 240% of their disposable income while in Portugal it is 128.6% and the Eurozone average ‘only’ 98.5%. This shows the weak situation of the seemingly rich Dutch households and how a raise in the unemployment or interest rates may rapidly derail the economy. The incipient effects of the crisis in Netherlands are only the beginning of what will follow if the current austerity policies are not abandoned. Taking more tax payers’ money from the North European workers to create a ‘super stability fund’ is not the solution, as it only benefits the speculators. In this issue, a clear-cut conflict of interest emerges between the few that profit enormously from the crisis and at the same moment are holding the political power in their hands, and the large majority of the population that is required to give their rights away to preserve the political and economic status quo. The outcome of this conflict will largely determine the future of our society.
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