Europe's debt crisis fuels civil resistance | The Daily Star
12:00 AM, September 10, 2011 / LAST MODIFIED: 12:00 AM, September 10, 2011

Europe's debt crisis fuels civil resistance

The events were clearly a sequel to the crisis over the US's public debt, and once again the need for introspection was all too obvious. On July 21, representatives of European governments agreed to a new package of loans to Greece, so as to pre-empt a default on Greece's obligations to its foreign creditors. The approval of the package did not signal a solution to Europe's debt crisis, but the failure of the first package agreed on last year.
Europe's financial markets continued to slide, as they continued to be reigned by the fear that Greece would ultimately default, and that a default would have a domino effect on other states considered "peripheral" to the European Union and to the Euro currency zone. Hence, by mid-August, Europe's two most powerful politicians, French President Sarkozy and German Chancellor Merkel, hastily got together for a bilateral summit. They launched fresh-sounding ideas, such as the view that economic policymaking should henceforth be coordinated in Europe and agreed that taxes should be levied on financial transactions.
But these pronouncements were received with great scepticism. For days after the summit took place, share-prices in Europe's financial markets continued to tumble. Some European banks saw their share prices fall by 30% or 40% in just two weeks! Clearly, the Western world is beset not by one, but two major debt crises. And the question that urgently needs to be answered is: how come Europe seems incapable of solving its own crisis?
To answer this question it is useful to scrutinise the case of Greece, which is considered Europe's weakest link. When the world financial crisis erupted in 2008, most Western states resorted to lending massive amounts of money to save their tottering banks. Whereas previous to the crisis states belonging to the Euro zone were obliged to keep budgetary deficits within strict limits -- this rule was temporarily abandoned, and public debts of most European states grew apace. Thus, Germany's debt in 2010 reached a record level of €2 trillion -- up 18% from the previous year. It reportedly constituted 80% of the country's Gross Domestic Product (GDP).
The public debt of Italy, which like Germany is considered a pillar of the European Union, stands at 120% of GDP. Hence, Greece is not by any means the only country in Europe which has failed to prevent a rise in the level of its debt. And yet the case of Greece is special because no other country in the Euro-zone has become the target of ruthless speculation. As Greece's public debt stands at a record 153% of GDP, it is forced to pay interest rates to its lenders that are outright usurious.
Hovering around 15%, Greece' payments over loans contracted with private lenders, such as French and German banks, is higher than the interest rate paid by any other state in the European Union. Some German economists argue that this is helpful since it forces Greece to put its house in order. But the interest rate primarily shows that Europe's leading banks dominate over the Union and its members.
We may next note the extraordinary inefficiency of the disciplinary measures imposed on Greece. When the country first threatened to default on its repayment obligations in April last year, the EU and the International Monetary Fund (IMF) together devised an "aid" package that included standard austerity measures, such as reductions in social spending and in wages of state employees, and also the obligation to sell-off €56 billion of state properties.
Austerity measures and privatisation of state companies have, of course, been familiar conditions of the IMF's "aid" packages all through the era of neo-liberalism. But the unhealthy nature of the impositions has rarely been as quickly apparent as in the case of Greece. For, whereas the EU and the IMF argue that the balancing of Greece's government budget is necessary in order to "get the economy going," i.e. to help Greece resume its growth, the opposite has been the case. Last year, the Greek economy reportedly faced a negative growth rate of no less that 6.9%!
Even a child could tell the EU and the IMF that if debts exceed the amount a debtor manages to produce in one year, and if the interest rate over the debtor's debt, or over a major part of his debt, stands at 15%, he is unlikely to see his capital wealth growth. Instead, it is likely he will sink further into the morass. Hence, the conditionalities imposed on Greece are not just deeply unjust. They bring the moment of Greece's default closer.
Before returning to a broader assessment of European policymaking, we should briefly note the fierceness of Greek resistance against the government's austerities. The measures being imposed in the wake of the 2008 financial crisis have evoked protests all over Europe. There were massive strikes by workers in France last October; Spain had seen the emergence of a new youth movement, the "indignados," earlier this year; and England, well before violent riots of the unemployed youth erupted in London last month, had seen the emergence of a militant anti-austerity movement.
In December 2010 for instance, British students revolted against the reduction in educational budgets and increases in university admission fees by Cameron's government. And numerous groups have staged direct actions against tax evasion by corporations such as Vodafone.
But it is in Greece where the anti-austerity protests have unequivocally taken the form of civil disobedience. On the one hand, the country's leading trade unions have staged general strikes -- both when the first international plan against a default was adopted last year, and earlier this year. On the other hand, a reported 50% of Greece's population supports what's called the "We Won't Pay" offensive. This has taken the form of people's refusal to pay for road-tolls -- a system widely considered as highly corrupt. People in Greece's capital Athens also refuse to pay for the city's metro tickets, and in the country's second largest city, Thessaloniki, people have been running a bus-fare boycott. Both the struggles against privatisation and the road-toll protests have put Greece's parliament and government on the defensive.
Thus, Europe is witnessing a growing gap between policymakers and the under-privileged who are forced to bear the brunt of the crisis. The world financial crisis of 2008 has laid bare the need to tame the power of the financial sector, and the need for enhanced state-interventions. Yet, contrary to other world powers, the EU and its member states have failed to institute any significant civilian-Keynesian policies. Whereas China and the US adopted measures to stimulate consumer demand and investments the European Union has continued singing its old tune -- obliging its members to re-balance their budgets while failing to develop any alternative to neo-liberalism.
When the crisis over sovereign debts expanded, the EU felt compelled to partly counter the might of the European banks. It instituted a European level emergency fund of €440 billion and enhanced the role of Europe's Central Bank. Yet, as events in Europe's stock exchanges in August have clarified, these measures are far from sufficient to tame the financial markets. As a sequel to the two mentioned innovations, politicians are now debating the idea of issuing Eurobonds. Meanwhile, few appear to realise that a far more drastic shift in European-level policymaking is called for. As the banks continue to play havoc over Europe's weaker states, one wonders when Europe's policymakers will wake up.

The writer is International Correspondent of The Daily Star.
(This article is a sequel to his article "The US Debt Crisis: A Retrospective View" published on August 8.)

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