A Sad Day for Europe

by Alan Harvey, Institute for Dynamic Economic Analysis

The debate over Greece has an eerie resemblance to the debate over climate change. One side prefers apocalypse to changing its opinion, even in the face of evidence. In fact, as the evidence mounts, the denialists become only the more rigid.

In the case of Greece, the Troika consistently refused to engage the economic issues and evidence. Has austerity worked? Would the course preferred by the Troika result in better results for creditors? Does the hard line improve the prospects for European unity? Have the finance ministers served their respective states, or asked accountability from the banks? No, no, no, no and no. Yet the Neoliberal conviction and prescription is held ever more tightly.

Clearly austerity has not worked and has no prospect of working. Greece is in the condition it finds itself today because it, under pressure from the Troika and after signing the ill-begotten 2012 Agreement, enforced austerity as no other European state has done. The Greek people had five long years, since 2010 to witness that the actual results of attempting to shrink your way to growth are exactly as the Keynesian theory describes.

Clearly creditors are worse off. And acceptance of the Troika line would have only meant default on a larger debt. The best outcome for them (the creditors) would have been to restructure the debt into a form that allowed Greece to recover from the austerity-induced depression and get at least some return. But when the “they” who held the debt became the taxpayers of the states rather than the banks, their financial interests became secondary.

Would the capitulation demanded by Schauebel and the Troika improve prospects for success in the European experiment? That is a laughable proposition. In grim fact, the entire negotiation has been a spectacle of destroying any trust between states and giving lie to any democratic pretense under the EU. It must now be clear that the European Union, the European Central Bank and other institutions are instruments of control, not cooperation. In demonstrating the full power of their bargaining position, the Troika has exposed the depth of their devotion to a top-down Neoliberal agenda.

And there is really no debate on the economic points. The Troika does not deny that austerity was a failure. The Confidence Fairy never came. The privatizations, evisceration of labor protections and cutting of already scanty pensions did not lead anywhere but down. Nor do they deny that it would fail again.

The Troika does not deny that creditors, taxpayers and economies would be better off were the terms of debt made sensible. Nor does it deny that the private banks were bailed out at the expense of European taxpayers. The Troika merely ignores the substance — the economics, the financial realities, and the real sacrifices of the Greeks — and moralizes from a position of no moral authority.

It is a sad day for Europe.