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Monday, January 26, 2015

Greece may be first head-on challenge to Eurozone austerity

Yesterday Greece elected a new anti-austerity party, Syriza, to lead its next government. New prime minister Alexis Tsipras has pledged to end the austerity measures forced on Greece in the wake of the world financial crisis. Syriza is two votes shy of a majority in the Greek parliament, and announced a coalition last night with a right-wing Euroskeptic party, the Independent Greeks.

Syriza campaigned on a platform of ending the austerity measures and renegotiating its debt with the so-called "troika" of the International Monetary Fund, European Central Bank, and the European Union. The German government is strongly opposed to any debt forgiveness, but supporters of Syriza, such as the Jubilee Debt Campaign, are quick to point out that in 1953 it was Germany that received substantial debt forgiveness, with half its debt written off. And let's also not forget that despite Germany's self-image of economic virtue, a large part of its current world-topping trade surplus comes from the fact that the euro is undervalued for Germany.

As Paul Krugman points out, while critics inside and outside Greece routinely refer to Syriza as "hard left," "left-wing," etc., "it’s actually preaching fairly conventional economics, while the supposedly responsible officials of Brussels and Berlin have been relying on radical doctrines like expansionary austerity and a growth cliff at 90 percent." He quotes Francesco Saraceno: "On closer inspection, it seems far more radical the position of those who, despite having grossly underestimated the negative effects of austerity, ask for more of the same; of those who insist on advocating supply-side reforms to cope with a chronic lack of demand..."

 This lack of demand is reflected in Greece's unemployment rate, which has been above 25% since July 2012. It has retreated to 25.8% from a high of 28% in 2013, but because its gross domestic product has fallen so much, the country's debt/GDP has continued to increase despite its austerity policies. Indeed, the ratio has increased because of austerity.

It remains to be seen how successful Syriza will be. But it is already serving as an inspiration to other anti-austerity parties, notably Podemos in Spain, which still has an unemployment rate of 23.7%.

Austerity policies remain very much in play in the United States, with us today seeing an announcement of a bipartisan House committee on Social Security "reform" (read: cuts). It is good to finally see some hope that Europe is beginning to reject the politics of austerity.

1 comment:

  1. I must say that I do not understand the thinking behind the anti-austerity theory, which I see as saying that "We can spend ourselves into prosperity."

    I don't get it. Where will the money come from? Taxes, debt, and inflation are the only options, and Greece cannot inflate the Euro. If they tax businesses, those businesses will have less money to create jobs, and it assumes that those businesses are even making a profit these days. The same goes with high-income earners. The more you take in taxes, they less they have to buy from those people whose labor produces the goods and services.

    Are they going to borrow more money? Who's going to lend it to them with the huge risk of default? Worse, if the interest rate is higher than the growth rate you expect to achieve (and it will be), wouldn't that just suck MORE money out of the economy (according to Picketty)? According to Picketty, that just makes things WORSE.

    I just don't get it.