Neoliberal bankers are pushing Greeks to the breaking point
No 409 Posted by fw, February 15, 2012
“Well we should be learning, what the European bankers are learning, and that is — What is the result of a great experiment that’s going on? For the last five years in Latvia, the neoliberals have lowered wages by about thirty percent. The basic premise of today’s model builders is you don’t know how far you can lower wages and pensions until people begin to press back. Well in Latvia they still haven’t begun to press back when they’ve lowered to thirty percent. Now they’re moving towards Greece — on the way to Spain and Portugal and Italy — and they’re trying to figure out how much can we lower wages, how much can we drain an economy until there is pressure to come back?” —Michael Hudson
So says Michael Hudson in his response to Paul Jay’s opening question: “What should we [the US and Canada] be learning from what’s going on in Greece?” To find out Hudson’s answer, watch the 11-minute video below. My transcript, with minor revisions, follows. Subheadings, reflecting my own personal inferences from Hudson’s commentary, and text highlighting have been added.
The Greek Experiment, uploaded by The Real News, Feb 14, 2012
Europe’s financial elites imposing “savage austerity measures” in Greece. What can we learn?
Paul Jay – In Greece, the financial elites in Europe have gotten agreement from the Greek government to another round of what some are calling “savage austerity measures”. For example, lowering the minimum wage by twenty-two percent, a new round of privatizations and cuts to pensions and many other social programs. This is, I guess, an example of banks and a banking technocrat — that now leads the Greek government directly intervening — calling government policy. So what does this tell us here in the US, Canada and other countries that are watching this? Now joining us to discuss all this, Michael Hudson is a former Wall Street financial analyst, a distinguished research professor of economics at the University of Missouri, Kansas City. So, Michael, what should we be learning from what’s going on in Greece?
It will be to our own peril if we fail to learn important lessons from “the great experiment” now going on in Greece
Michael Hudson – Well we should be learning, what the European bankers are learning, and that is — What is the result of a great experiment that’s going on? For the last five years in Latvia, the neoliberals have lowered wages by about thirty percent. The basic premise of today’s model builders is you don’t know how far you can lower wages and pensions until people begin to press back. Well in Latvia they still haven’t begun to press back when they’ve lowered to thirty percent. Now they’re moving towards Greece — on the way to Spain and Portugal and Italy — and they’re trying to figure out how much can we lower wages, how much can we drain an economy until there is pressure to come back?
Lesson one – Start getting organized now because the neoliberal squeeze is already in progress here
And the right-wing who’ve essentially appointed a bank lobbyist – which is called a technocrat – in charge of Greece is let’s not try the experiment to just see how much we can squeeze out because they realize that the left in Europe is completely fragmented. They don’t have a defence available. They don’t have a body of concepts available to say wait a minute. This is crazy. When you’re lowering wages you’re actually sinking an economy. When you’re cutting the budget deficit you’re reducing the amount of money that comes into the economy to promote demand. So, in effect, what Europe is doing is bleeding economies very much like a medieval doctor would bleed blood on the grounds that this is going to make economies more productive. The only response that the Greek people have, not simply the left but the right and the Greek people is, look if you think you’re going to increase the surplus, increase taxes by lowering our wages and cutting our pensions and cutting out health care, we’re going to do what the Egyptians are doing and what the Arab Spring is doing, we’re going to tear the economy apart and there won’t be anything for you.
Lesson two – Neoliberals are putting our democratic institutions at risk
And PASOK, the socialist party that inaugurated this whole austerity program, now has an eight percent approval rating in Greece. That’s even lower than Mr Obama has for cutting wages here. So what the Greeks are saying, look when the premier said that they were going to have a referendum for whether we want to cut back the wages to pay the bankers, the first thing Angela Merkel said was you can’t have a referendum. We’re going to suspend democracy. We’re going to impose a dictator on you. And we’re going to tell you what to do. Well, under modern international law, if there’s no democratic commitment to pay then the debt taken on is null and void. Well, the European Common Market has had its lawyers say okay we’re going to get the agreement of congress. Well the Greek people can say look you can come down with bags of money and you can buy all the parliament members that you want to approve the deal but as soon as there’s an election we’re going to throw them out. They’re not acting on our behalf.
Lesson three – There’s probably no political party in the US or Canada that you can trust to reverse the neoliberal tide
Paul Jay – But it’s not clear by polling that the next election would actually elect a government that wouldn’t go along with this. Most of the parties that seem capable of winning elections in Greece have signed on to this deal. But can I go back to something earlier you said. Is not one of the big objectives more about privatization? That if you can create so much chaos and dependency on the Greek government, on the European financial elites, they’re going to sell everything off. And apparently they’re talking now about selling airports, and seaports, like a whole other level of privatization.
Privatization of public assets will be the bankers’ spoils for manufacturing this crisis. We’re at war!
Michael Hudson – Not only that but also the water systems, the sewer systems, real estate, the islands. You’re right. They think that if they create a crisis it becomes a grab-bag. And bankers and people who have a plan usually do much better in a crisis than people who don’t have a plan. So this indeed seems to be it. Finance today achieves what military invasion used to do in times past. So the new mode of warfare is financial not military. It’s much cheaper and it’s much safer for the country doing the attack. So you’re quite right. Privatization is a big role. And that’s why yesterday the European Union said wait a minute. We’re not even going to give you the money to pay us, namely, for us to pay our own banks that have bought your bonds, unless you spell out exactly what you’re going to privatize and commit to it now. And this is the sticking point. In the past, the Greeks have made promises, and thank heavens they haven’t privatized. Because once they begin to sell things off then there’s going to be a real squeeze and even more of an opposition. This looks pretty grim.
Europeans are committed to “savage austerity”, US not so much. Why the difference?
Paul Jay – There actually does seem to be some kind of different approach between Wall Street and the Europeans. You can hear interviews with Wall Street representatives who actually say no, you do have to have short-term stimulus before you have these kinds of austerity measures. You can’t force the world into a global depression. You hear that kind of language out of New York and out of President Obama. The Europeans seem so committed to severe austerity.
Michael Hudson – There are two reasons for that. Number one: from the very beginning of the last century America has already had, in the private sector, what was in the public domain in Europe. Europe had its power companies, electric and gas systems in the public domain. America privatized them but as regulated public utilities. The public utilities were regulated as to how much bond and equity they could get, what their rate of return would be. Europe has no body of law to regulate the prices or rent extraction that public utilities can charge because they had always had these in the public domain just like Russia, the Soviet Union, had no system like this. The objective of privatizing in Europe — first of all there’s much more property and public assets to grab in Europe than there were in the United States. And secondly, there’s no regulatory body in Europe because of the fact in the past power and sewer and water public utilities were supplied either at cost or at subsidized rates to make the economy more competitive.
Cut wages and workers will vote with their feet in mass emigration
So the idea in Europe is not only that you cut wages by thirty percent but you’re now going to raise the price of what you just mentioned – the access to water, sewers, transportation, everything else – you’re going to raise the price to put the real squeeze on wages. And the result in Greece will probably be the same as it was in Iceland, Latvia and other countries – there’s going to be a large emigration of working age labour and the result will of course be to make the economy much less competitive.
Greece’s GDP just fell 7% annual rate, a sure sign of an economy in steep decline
In this morning’s newspaper when it turned out that Greece’s GDP fell at a seven percent annual rate, not the five percent expected, as usual the newspaper said, to everyone’s surprise, the situation is worse than projected. Well of course it really wasn’t to our surprise because we know that when you’re strangling an economy, of course it can’t cope very well. And they’re strangling the Greek economy. They’re using it, I think, as a laboratory experiment to see what’s going to happen when we really just squeeze labour and squeeze labour. It’s like trying to feed a horse less and less to see whether it’s really going to be more efficient until it keels over dead.
Paul Jay – And I guess it’s always the way large-scale unemployment is always a good threat against the employed within a country. The more you can beat up Greece, Spain, and Portugal, the more you can threaten the working classes of France and Germany where I guess the big targets eventually will be.
Can the European Union survive a class-based economic war?
Michael Hudson – Well if that happens there’s going to be a renewed nationalism that’s going to cut the common market apart. And you’re going to have all of a sudden a realization that — when Europe united, the whole idea if it’s united was that it would never go to war again. Military war. But now that it’s united under neoliberal bank rules, they think, wait a minute we’re united and we are going to war. But it’s a class war. It’s an economic war. And this isn’t what we wanted. If the idea of uniting in Europe is for a class war under rules where we’re guaranteed to lose then we’re saying no to Europe, just as the Icelanders voted not to join Europe. Just as other countries that had planned to join Europe – all the way to Turkey at the other end — are saying wait a minute, if that’s the Europe that’s coming, an oligarchic Europe, whose program is austerity and shrinkage, why on earth would we want to join?