The euro debt crisis is reaching a new level. Greece is now close to defaulting on its state debts. This threatens to cause a new banking crisis that could trigger another economic slump. This dire scenario may yet be avoided, but the odds against it are dropping.
The latest hot spot has been highlighted by the news that European Central Bank chief economist Juergen Stark has resigned. Stark has done this because he opposes the decision of the ECB board to start buying the bonds of the Spanish and Italian governments. The ECB decided to do this because these bonds were falling so much in value, they threatened make it impossible for the governments of these major European economies to raise money to finance their debt at anything like reasonable rates of interest. It had already become impossible for the Greek government to do so. Lenders to Greece were demanding 45% interest on one-year bonds!
The Eurozone governments had set up an emergency fund called the European Financial Stability Facility (EFSF) to ‘bail out’ Greece, Ireland and Portugal so they did not need to borrow money from bond markets. But over the summer, the same problem began to arise for Italy and Spain. Europe’s leaders have dithered about whether to increase EFSF capacity to fund these big states too. So the ECB was pressured into providing emergency support and agreed to buy Italian and Spanish bonds as a temporary measure until Eurozone governments decided what to do.
This is what has upset Stark. For him, as a German, this is not what the ECB was set up to do. Its role is to keep inflation under control by manipulating interest rates, not bailing out governments by buying their bonds. Stark sees this as exposing the ECB to the possible losses on this government debt if Eurozone governments default on their debt, thus forcing German and other governments to bail out the ECB itself. Stark wants either the government leaders to come up with more funds themselves or to allow Greece and the other states to ‘restructure’ their debt, or even better just do what they are told on fiscal austerity.
Increasingly, the German leaders are split between ‘bail out’ or ‘kick out’. Stop bailing out Greece and the other states and just kick them out of the euro, says one wing. While the other wing says: make the Greeks meet their austerity targets but bail them out to save the euro in its current form. The latter group is still the majority, but the former group is growing.
In the meantime, the Greek people face yet another round of cuts in living standards, jobs and services as the pressure grows from other Eurozone governments and their leaders for the Greek government to meet draconian targets set for government spending and taxation. The so-called Troika (officials of the EU Commission, the European Central Bank and the IMF) come back this week to Greece to tell the ‘socialist’ PASOK government in Athens that they must do more to meet these targets or the next tranche of the bailout funds agreed last July by the heads of the Eurozone to pay for the Greek government’s debts that it owes banks and pension funds across Europe and elsewhere may be stopped.
What was the reaction of the Greek government? The finance minister Venizelos announced that all public sector employees would lose their permanent posts and would have to reapply for them on a stand-by basis, while receiving just 60% of their salaries for the next 12 months. Up to 120,000 would not be re-employed. Health Minister Andreas Loverdos remarked to a parliamentary committee that “1 million employees have been burdening the other 10 million… the fact that civil service positions are permanent is what got us into this mess in the first place,” he said. So, according to Loverdos (no love there, I think), the reason for the economic crisis in Greece is not the banking collapse or the Great Recession, but the burden of too many lazy workers in public services that other Greeks can’t afford. This is from a socialist minister.
Onanran correctly opposes the solution of leaving the euro, as suggested by the socialist economist Lapavitsas among others. Onaran says that “we would prefer to push for an alternative Europe and changes in the economic policy framework within which the Euro operates…
Public finance has to be unchained via debt default in both the periphery and the core. This has to be coordinated at the EU level as part of a broader public finance policy to make the responsible pay for the costs of crisis and to reverse the origin of the crisis, i.e. pro-capital redistribution. This involves a highly progressive system of taxes, coordinated at the EU level, on not only income but also wealth, higher corporate tax rates, inheritance tax, and tax on financial transactions. A progressive income tax mechanism could also introduce a maximum income with the highest marginal tax rate increasing to 90% above a certain income threshold in relation to the median wage. A progressive wealth tax on government bonds with the highest marginal tax rate reaching to 100% for holdings above a certain amount of bonds could be formulated as a way of restructuring the debt; this would make the banks, the private investment funds, and the high wealth individuals pay the costs of the fiscal crisis.”
Moreover, fiscal policy “should completely abandon the EU’s Stability and Growth Pact, and public spending should aim at the multiple targets of full employment, ecological sustainability, equality, and convergence via generating public employment in labor intensive social services as well as public investments in ecological maintenance and repair, renewable energy, public transport, insulation of the existing housing stock and building of zero energy houses.”
And “the ECB should be turned into a real central bank with the ability to lend to member states…to serve the priorities of development, sustainability, full employment, and equality.”
As for employment, “a minimum wage should be coordinated at the EU level… and regional convergence should be supported by fiscal transfers and public investments to boost productivity in poorer regions. Furthermore a European unemployment benefit system should be developed to redistribute from low to high unemployment regions. This requires a significant EU budget financed by EU level progressive taxes.”
Regarding employment in the private sector, “it is important to prevent firms from making use of the crisis to implement their long-term downsizing strategies. An alternative would be legal measures to ban firing during the crisis and implement wage floors: if the firing ban leads to bankruptcy in certain firms, these firms can be re-appropriated and revitalized under workers’ control, supported by public credits. Widespread examples of that were seen in Argentina after the crisis in shut-down companies.”
In cases of sectors that are under the threat of mass layoffs, like the auto industry, nationalization of the firms and restructuring of these public firms should be considered, e.g. the auto industry, a shift of focus towards the production of public transport vehicles, and a gradual transfer of labor towards new sectors.”
And finally, the banks: “Financial regulations including capital controls are important but not enough. Finance is a crucial sector which cannot be left to the short-termism of the private profit motive. This sector has already been de facto nationalized, but without any voice for the society and with a commitment to privatization as soon as possible. …. Instead what needs to be done is to build a public banking sector with the participation of the workers and other stakeholders to decision making and the transparence of the accounts.”
Above all, “this crisis calls for a major shift in decision making to facilitate economy wide coordination of important decisions. This in turn requires public ownership and the participation and control of the stakeholders (the workers in the firms, consumers, regional representatives etc.) in critical sectors for the society, such as banking, housing, energy, infrastructure, pension system, education, health.”
This is the way forward, not the programme of austerity that brings even lower economic activity; or the slogan of leaving the euro and resurrecting a national currency. The Greek or even British working classes will not be saved by having their own currency in a capitalist Europe.
*Ozlem Onaran (Fiscal crisis in Europe or a crisis of distribution?) Political Economy Research Institute, University of Massachusetts Amherst, http://www.peri.umass.edu/236/hash/91ee67bea2d8f4b261cd1c80cfc69d70/publication/412/