Euro Zone Has Let Down Greece

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.