Euro Zone Has Let Down Greece
In Economic Times there was a short article
which was trying to draw lessons from Greece crisis. The gist of the message was “Do not live on
borrowed money”. It gave examples of how
some people hold several credit cards and pay dues of one credit card through
another credit card; or pay their emi through credit cards; or those who pay
only minimum amount. These people
finally land up is a debt trap which goes round their neck with no means to get
out.
I think the
general view of people would be that Greece lived beyond their means on
borrowed money. To think of Greece in
this manner would be most unfair to this nation and would mean we do not want
to see the truth of how EURO ZONE functions and what happens to the countries
whose economies are weak. Not all the
members of Euro Zone are anywhere near the Economy of Germany, France and
Netherlands. It is a common knowledge
that Spain, Italy and Greece are their weak members. These nations cannot be held responsible for
their weakness.
When Greece
joined Euro Zone in January 2001 the global economy was apparently
healthy. The upswing economy started
moving their capital to the periphery of the global system to exploit the
weakness of the periphery nations.
Greece being on the periphery of the advanced capitalist countries
capital was flowing into Greece. At one
time the economy of Greece grew at 4.3% while the average growth of Euro Zone
economies was 3.1%. This growth has not
spurred by the organic development of the home economy. It was sparked by the investments from
outside.
The impact
of 2007 – 2008 global economic crises was experienced by all the economies of
the Euro Zone countries. During this
period of crisis foreign investments started moving out of Greece. As a result Greece began to go through economic
depression. The GDP of Greece fell by 27
%. The unemployment went up to 25
%. 60% of the youth did not have
jobs. Greece’s export dipped and they
had to depend on borrowing. Their debt
reached to the point of 180% of their GDP.
This is a natural consequence of the global economy. It brings all nations into one market. But it throws them back at different uneven
levels. The global economy essentially
has some nations at its centre and some at the periphery. Precisely this unevenness supports the very
existence of the centre. When the great
depression like the one spurred by the Wall Street Meltdown would have most
devastating effects on the economies at the periphery. Only those nations which have relatively
strong independence and regulations will not experience such effects. Euro Zone had done away with all regulations
the member countries could exercise. In the atmosphere of loss of control on its
policies Greece had been extremely vulnerable to the impact of global crisis.
During the
period of deep crisis (from 2009) Greece had borrowed from the creditors like
Germany and from IMF under very stringent conditions. All the three institutions, IMF, ECB
(European Central Bank) and EC (European Commission) had imposed what is called
“Free Market Reforms”. IMF has a single
medicine for all nations who are in financial crisis. And this medicine makes sure that these
countries never ever recover.
The free
market reforms were called austerity measures and they included:
1. Cut on the government spending on
social welfare programmes, especially retirement pension and health insurance.
2. Cut on the household spending.
3. Labour reforms, wages get cuts and the
rights of the workers getting reduced,.
4. Privatization of public assets held
by the government.
These
reforms had affected the lives of the middle class and lower classes very
adversely. High unemployment and 60%
youth not employed had brought the families to the edge. Now the wage cut meant they had to live
without their basic necessities being met. We could see the senior citizens suffering
because their pensions were cut and whatever little they got it was so
irregular. Labour reform might have
given boost to production and profitability because of low wages. But it had backfired as the people did not
have purchasing power to buy goods and services produced.
The sale of
public government assets paralyzed the government from delivering social
welfare measures to the people. The sale
of these assets brought to the treasury paltry little sum which was horribly
inadequate to pay back the loans. It led
the private interest to benefit from this sale, as they got the public assets
almost for a song.
Free Market
Reforms pushed the people and the nation deeper into misery and
bankruptcy. There was a need for another
bailout loan to keep the nation afloat.
Since the dues to the creditors were not paid the European Central Bank
closed down the banks in Greece for more than two weeks. People already
suffering could not draw even little balance they had in the banks. There was a need for a new bailout but since
people were pushed to the edge they did not want austerity measures any more.
Loss of faith between
Greece and Euro zone:
The left had come to power in Greece on the promise that it
would put an end to the austerity measures.
In the referendum the Greece had voted NO to austerity by 61% of
majority. They were tired and miserable. The closure of banks for two weeks had brought
the Greece to a standstill and the people were literally starving.
On the other hand the Greece defaulting payment of loan had
made the richer countries, who were the creditors, very angry. Angela Merkel stated that “the biggest
currency that was lost was trust”. Germany
which was the biggest creditor probably thought that their Deutschmark was
lost.
Euro Zone is not a charitable organization. It is a club of economies which were in
competition with each other and inherently exploitative. They meant business
and nobody was willing to lose even a penny for the sake another country. The common currency with ECB and independent
sovereign states were trying to coexist.
The independence and sovereignty of the states was undermined by the
fact that these countries cannot do anything independently to solve their
economic crisis. The abnormal situation of Greece is that it has no control on its financial
policies. Its authority on financial policy comes from the ECB. What is worse is that their elected
government could be brought down through the manoeuvres of the ECB and EC. The powerful countries like Germany will have
the last say in the matter.
The situation of Greece is a consequence of natural
functioning of capitalism. Euro Zone had
reduced Greece to penury. It had
become evident that the IMF, ECB and EC (TROIKA) had no desire to understand
the problems of Greece, leave alone wanting to help to solve their problem. The fact that Greece has a leftist government
would be another irritant in the minds of the leaders of Euro Zone. They would
push Greece to the wall and draw maximum benefit from the situation. Because of the unfortunate situation of Greece
the creditors were gaining. By giving
them loans, they extract interests and reduce Greece as their backyard. All the loans given to the Greece was going
back to the rich members of Euro Zone.
Greece was denied of
Dignified Option to overcome its crisis:
Greece wants a breathing space to put its house back on
track, to meet the basic needs of the people, to have modest decent life, which
they are deprived of since the ongoing of depression.
Under normal conditions a country would have its central
bank, like Reserve Bank of India or Federal Reserve of the United States of
America. These central banks are
constitutional authorities which enjoy independence of political governments. These banks play an important role of issuing
financial policies, fiscal discipline and liquidity management. In times of depression the central banks will
introduce more liquidity by printing more currency so that the government would
have more money at its disposal to spend on social welfare to help tide over
the crisis. When the country’s economy
performs better it prints less currency to control inflation. Greece could not do any of these things. Though it is a sovereign nation it does not
have a central bank to guide its financial policies. This power rested in the hands of European
Central Bank. This ECB functions for all
the members of Euro Zone. When the economies
of Germany and other prosperous members are doing excellent there is no
question of ECB issuing policies to help Greece. The banks in Greece do not come under the
control of Greece government, but under the control of ECB. ECB had left the Greece government incapable
of remedying its crisis.
The Real Nature of
Euro Zone:
Euro Zone has been founded to consolidate the economic power
and consequently the political power vis a vis the United States. They wanted to throw up a new international
currency, which would become alternative to US $. Euro has become a very powerful currency
though it has not occupied the position of US $. Euro Zone has strengthened the rich members
while the weaker members remained behind and they float on the back of
Euro.
Euro Zone does not play the role like Germany played when the
East Germany merged with the West Germany. Over the years the prosperous West Germany
helped the weak East Germany to even out with the West Germany. Euro Zone is not intended to help the weaker
member nations to even out their differences.
Socialist approach to the International Relations
-- CMEA:
There was
an institution in place among the socialist countries (socialist block). The
name of this institution was “CONFERENCE
FOR MUTUAL ECONOMIC AID”.
Under
SOVIET UNION the option of a socialist world market was developed which should
function as an alternative to the capitalist world market, providing new and
better rules for international relations, banning exploitation and uneven
development. The socialist world market was primarily a net work of bilateral
relations based on barter.
CMEA emphasized
on rapid industrialization, which would provide in each of the CMEA member
countries a complete industrial base with the same priority industries being
developed at a faster rate in each of them.
This autarkic development policy was made possible by Soviet deliveries
of energy and raw material. The Soviet
Union, GDR and Czechoslovakian provided the less developed CMEA countries with machinery.
(Hans van Zon, Crisis in the Socialist
International Economy) Even India
has benefitted from the Soviet Union investment in public sector
industries. USSR offered this without
repatriating any proceeds from these industries by way of profits.
Euro Zone
is far from such a spirit of cooperation and mutual aid. It has made Greece bleed. The fate of Greece has many lessons for the
weaker members of
the Euro Zone. They will not get any
help in times of crises. Weaker
economies being in Euro Zone is like a sparrow trying to fly with a kite. These signs tell us that the future of Euro
Zone may be in question. Though Greece
has taken the bailout by agreeing to the harsh conditions, it should slowly
prepare a way out of Euro Zone. No doubt
this step will push Greece back drastically, if Greece wants long term solution
to their problem and protect it sovereignty and dignity it should exit Euro
Zone. This is also a warning to other
smaller economies which are at the same level as Greece.
In my
opinion the smaller countries should come together into an alliance for mutual
aid, define their relationship with advanced countries and build themselves in
cooperation and collaboration with each other.
SAARC, BRICS like cooperation have a short history ahead. There are lots of inner political and
economic contradictions that will not see these networks through.