The lies of the ruling circles and the inner logic of the crisis
When Angela Merkel declared last Monday that ‚Europe survives because of its ability to compromise‘ – a statement that, given the current situation, sounds like a Monty Python joke – the so-called Vice-chancellor (SPD) spontaneously backed her (see here). The German Minister of Foreign Affairs (also SPD), who cannot be suspected of any expertise in economic questions, let the world know that he is ’stunned‘ by the position of the Greek Government. The President of the EU Commission, Jean-Claude Juncker, emphasised that the package that SYRIZA rejected did not contain further austerity measures and that no one suggested any pension cuts. Martin Schulz (SPD), the President of the European Parliament, added that the package did not require VAT increases. They all declared that it is simply not possible to, once again, ‚give‘ money to the Greeks without conditions, especially since Greece has not delivered on the previous ones. Peter Altmaier, the Chancellor’s right hand, shamelessly declared that Greece had failed to carry out reforms and that other countries which implemented the austerity packages have done much better in the meantime.
It is perhaps not so surprising that during times of crisis sheer lies and complete falsehoods become the mainstream of everyday politics. However, in this case, more is at stake than just everyday politics and something else is going on: the shameless ways in which the majority of the German media has been waging ideological warfare against the Greek government. I do not want to reiterate all that we have said and written in recent months on these issues. It seems important to me, however, to once again briefly explain the essence of the whole conundrum and its fundamental importance and to highlight the core of the ideological framework of the creditors and their institutions. With these ideological hardliners – on this SYRIZA is absolutely right – no compromise should be made but, unfortunately, is unavoidable if Greece wants to avoid the worst.
There can be absolutely no doubt that, during the negotiations of the last five months, SYRIZA has tried its utmost best to work out an honourable, workable and intelligent agreement. There is no doubt that Greece, since 2010, has been far from a model of ‚reforms.‘ These “reforms” have only brought the misery to Greeks. Those who doubt this or do not agree only have to consult the historical record.
The whole shaky building of conservatism, which the German Social Democrats joined without ‘ifs’ or ‘buts’ at the beginning of this century (and most recently also the French socialists and before that British Labour) is based on a fallacy that it is possible to manage a market economy successfully with only two minimalistic interventions. First, from the supply side, companies should have their taxes slashed and permanent pressure on wages has to be permitted or even actively stimulated and organised by the state. Second, the whole range of macroeconomics must be left to the Central bank, or, more simply put, the state has to act like a business or a household: it should never assume any debt and if it does, cutting spending must immediately become the priority of macroeconomic policy. In the uninformed imagination of many national and European policy-makers this simple recipe is sufficient to run any economy in any country, be it large or small, rich or poor, regardless of whether the economy is relatively closed or relatively open. This is also the worldview that the institutions, such as the IMF, the ECB and the European Commission, fully adhere to.
Of course, such minimalism seems to be in the interests of companies (which is not true but they strongly believe it) and at the same time it is fully congruent with the currently dominant ideological orientation of the trade unions (which is based on microeconomics only). These easy to understand views can be sold on every corner of the street, at least as long as people remain fundamentally misinformed, which largely explains, in my view, why conservative policies can be implemented without much resistance. Conservatism also plays upon the basic instincts and the economic prejudices and misconceptions of a substantial part of the population: the reprehensible nature of debt (‚pay what you owe‘) and the view of economics as a competition between nations where the best win and the weak fail (‚hard work pays off‘). It resonates with basic instincts.
The competing argument – Keynesianism in its broadest sense – is of course also based on the principles of a market economy, but it requires some effort to explain and understand and as such it is much less fit for political ideology and layman terminology. Keynesianism deals with the overall economic responsibility of government as an indispensable economic actor. In the eyes of some, it blurs the seemingly clear distinction between the responsibilities of governments and central banks, it contradicts what people, on the basis of common sense and experience, tend to think about the link between wages and employment and it rejects economic competition of nations as a zero sum game. None of this is easy to explain, especially when ideological notions of the economy as a “survival of the fittest” and mercantilism regime reign supreme. Attention spans are counted in seconds and self-proclaimed economic experts publish untruths and fallacies in newspapers all over the country on a daily basis for years on end.
The conservative position and Keynesianism are really a world apart, but they never conflict more with one another than in a situation of stagnation and recession (as is the case in Greece today) and when it is necessary to devise a growth strategy. Because the conservative position has come to identify any macroeconomic thinking as Keynesian Satanism, then no other strategies to revitalise the economy remain other than the ones used by the Swabian housewife who fell into a swamp: she either tries to make her way out by trampling over others or she decides to lose weight extremely fast, hoping to pull herself out of the swamp on her own accord.
The conservative position is fundamentally flawed because it systematically ignores – and actively excludes – all negative repercussions of restrictive policies and austerity, first and foremost, its negative consequences on growth. It only takes some basic comprehension to understand this essential insight. When governments increase taxes, cut on spending and cut wages, aggregate demand inevitably falls. This is, in a nutshell, the problem in Greece: the reforms destroyed demand and with it the potential of the economy to recover. In the meantime, after five years of ‚reforms,‘ not even the debt/GDP ratio improved – not in Greece and not anywhere else. The ratio got worse in Ireland, although these days the emerald isle is the conservative poster-child of ‚expansionary austerity.‘ According to the prevailing doctrine, government cuts lead to positive interest effects. However, it can be easily shown that this effect does not exist. But even if it were true, the effect cannot occur in Europe because the ECB reduced interest rates to zero already anyway. The other truth of the matter is – although conservatives find it utterly unpalatable – that in the real world the negative effects of wage cuts always outstrip potential positive ones (which only exist in very specific conditions). Wage cuts have immediate negative effects on demand at home and in the longer term they lead to disastrous effects abroad (as we have shown many times).
The conservative position is, in fact, just pure ideology. But it does not really matter whether their insights are wrong or not. Their economic model and the reforms they advocate must not be questioned politically, because even the slightest concession would be tantamount to an admission of imperfectness and vulnerability and would, as feared by its advocates, open Pandora’s box. For conservatives it is impossible to come to terms with the idea that government once again has to play an active macroeconomic role even if it is obvious that government is the only actor that can play a specific and absolutely indispensable macroeconomic role, much like in Greece these days. The down-to-earth reason why conservative (Christian) Democratic parties obstinately reject any sort of Keynesianism (Social Democrats do the same, although for them it is pointless and stupid, but convenient) is that they cannot expect that their bourgeois clientele and electorate will ever abandon its small-scale and petty bourgeois economic thinking.
But look at the consequences of such a state of affairs. There is something self-enforcing about it. It leads to an extremely deplorable and harmful situation. Conservative economic thinking resolves around populist notions: the economic opinion of the manager of the local plumber firm or the biggest local builder, for example. The end result is that uninformed and wrong, but ideologically potent, views are being propagated and portrayed as a matter of common sense (‚everybody understands that …‘). Elections are being won on the basis of positions that ‚everybody understands,‘ never mind that they are flatly wrong and harmful. The ultimate, perverse, consequence is that conservative parties can only be politically pragmatic and follow Keynesian insights (as Angela Merkel did for a very short time after the global financial crisis hit Germany) if the plumber and the builder (or the CEO’s of the most important export industries) are approaching them for help. But this happens only when national businesses and livelihoods are threatened.
For other countries such a way out doesn’t exist. When it comes to problems that do not involve their electorate, bourgeois conservatives parties will never change course. They will never admit to the failure of their policies. They will not concede that austerity has been a recipe for disaster. That, however, is exactly what SYRIZA has emphasised from the very beginning and rightly so. Given these initial positions, the ’negotiations‘ did not allow a compromise. The institutions and the German government, led by CDU (the Christian Democrats) had to insist upon restrictive policies and then upon more restrictive policies, regardless of the obvious failures of these policies, while SYRIZA’s main goals were to end austerity and give the Greek economy a positive impulse. During the last week of June the Euro group finally offered a somewhat softened package, but it was still very restrictive (this offer has been taken off the table after the referendum). The thumbscrews were eased somewhat after five months of negotiations but they remained and were still very painful. Now SYRIZA itself offers a package that is very similar to the last offer made by the Troika. Unconditional surrender is the word for this in times of war. SYRIZA decided to accept the reforms and allow austerity to continue. SYRIZA seems to have accepted that bringing growth back to Greece is impossible.
The conclusion from all these considerations is bitterly disappointing: it will prove impossible to find a way out of the crisis of the European monetary union as long as the Conservatives are in power and as long as the Social Democrats support them. The conservatives are incapable of governing a large and relatively closed economy such as the European economy. That may sound like a harsh judgement given the history of the CDU and their economic successes. But closer inspection proves it is right. In the first two decades after the Second World War when Keynes‘ thinking dominated economics and economic policy-making globally, the CDU just implemented the new policies without having to decide much for itself. The Federal Reserve ran the global economy and the other countries followed. In the second phase of their government, when the CDU had come to power in 1982 again, after losing it in 1969, their “success” was largely determined by factors outside the realm of their own policy-making: the appreciation of the dollar in the 1980s helped the German economy tremendously and the German unification in 1990 forced the CDU to adopt Keynesian policies.
Recently, however, we entered the third phase of CDU hegemony. This time there is no trace of any Keynesianism whatsoever. The conservatives are causing enormous damage to the European economy because their policies are fallacious. The problem, so to speak, is that, in the meantime, the German economy accumulated such huge advantages in trade and competitiveness that it is far less affected by the collateral damage of the conservative anti-crisis measures (implemented with the support of the Social Democrats and the Greens) than other countries. The Conservatives did well, they think. Just ignore the pernicious consequences of the unemployment that Germany exported, the pressure on wages everywhere in Europe, the plummeting of demand, the corresponding lack of investment, the rise of deflation and low productivity growth.
It does not look like the economic situation in Europe will improve any time soon. We can talk about alternatives, make suggestions and propose plans, but none of this will help as long as the power relations in the creditor countries do not change. Change will only be given a chance when France and Spain, and possibly also Italy, will begin to understand the full extent of the damage that the German leadership has caused to the monetary union and when they openly start to oppose German politics. As things stand at the moment, there are only anti-austerity parties in two of these three countries. It is these parties that have the potential to rise to the challenge of showing Germany the limits of its power because they are explicitly against Europe and the euro.
An updated version of an article published in German on July 7
Translation: W. Denayer