Sunday, March 8, 2015

The future of Greece and Spain

Joseph Stiglitz, Paul Krugman, Charles Wyplosz (see, for example, Wyplosz' excellent article "Messing up the next Greek debt relief could endanger the Eurozone"), Paul de Grauwe and Yanis Varoufakis are among the well known, thoughtful economists who have criticized the way European policymakers and the IMF have handled Greece's debt problems (and that of other European countries). One of their criticisms is that Greece's debt should have been reduced in 2010 rather than increased, as was done when the first EU-IMF 'rescue' loan package for Greece was put in place. Rather than helping the Greek people, these new loans helped European private banks to survive.

Paulo Nogueira Batista, executice director of the IMF
Their criticism was shared by Brazilian economist Paulo Nogueira Batista, executive director of the IMF, who said in a prepared statement to the May 9, 2010 IMF board meeting discussing an IMF loan to Greece: "The risks of the [Greek] program are immense…As it stands, the program risks substituting private for official financing. In other and starker words, it may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions."

Recently, in a television interview by Thanos Dimadis for Alpha TV, published on March 4, 2015, Paulo Nogueira Batistsa added:

"I was critical of the way the Greek issue was handled by the Troika including the IMF. One of the major problems of the IMF program was that they put too much of a burden on Greece and not enough of a burden on Greece’s creditors. The first program of 2010 was presented as a bailout for Greece, but in reality was more a bailout of the private creditors of Greece. Greece received enormous amounts of money but the money was basically used to allow the exit of, for example, French and German banks, without any contribution to the restructuring of the Greek economy.
In my opinion, the debt is way too large and a solution to the Greek crisis should include a restructuring of the debt of Greece with its official creditors. If you look at the situation in Greece, it’s difficult to see how Greece will extricate itself from this serious economic and social crisis without some debt restructuring. The largest part of Greece’s debt is now with its European partners.
The Troika or the institutions as they are now called, should respect the sovereignty of the Greek nation. The IMF and the European partners cannot behave as though the elections did not happen. It would be wrong to say that Greece should stick to all the commitments made by the previous government. This has to be reviewed. The IMF should consider the fact that the targets for the fiscal adjustment and the targets for the primary surplus need to be revised downward and substantially." 

The history of public debt in Greece and Spain

The Greek debt saga still goes on. Recently, Spanish economist Vicenç Navarrro put it in a broad historical perspective, in an article published by Counterpunch on January 9-11, 2015 ("What is going on in Spain?"). Navarro is a professor of political sciences at the Pompeu Fabra University in Spain and a professor of public policy at the Johns Hopkins University in the USA, who has become well known in Spain being one of the authors of a best-selling book presenting an alternative to the current neoliberal economic policies. He has also gained prominence being one of the two authors of a wide-ranging plan recently adopted by the new political party Podemos to change course in Spain: Un  Proyecto Económico para la Gente (An Economic Project for the People).

Navarro has written extensively (see, for instance, “Capital-Labor: The Unspoken Causes of the Crises,”, Economic Section and "Crisis and Class Struggle in the Eurozone") about the historical reasons why Spain, Portugal, Greece and Ireland are in trouble. In the January 2015 Counterpunch article he summarised his view as follows:

"All these countries, referred to rather unkindly in the Anglo-Saxon economic literature as PIGS (Portugal, Ireland, Greece, and Spain), have had ultra-right-wing dictatorships (fascist or fascistoid), except Ireland, governed by a very conservative party close to the Church. These dictatorships were the result of military coups (in the case of Spain, supported by Hitler and Mussolini in 1936) against democratically elected governments that had initiated meaningful reforms affecting the privilege of the oligarchy, i.e., the agricultural, financial, and (in the case of Catalonia and Basque Country in Spain) industrial bourgeoisie, in addition to the Catholic Church and the Army. The Spanish fascist coup established one of the most brutal repressions that has ever taken place in Western Europe during the 20th century. (...) Franco’s dictatorship was a class dictatorship against the working population. That dictatorship was responsible for the enormous economic and cultural underdevelopment in Spain. When the military coup took place in 1936, Spain’s Gross National Product (GNP) per capita was similar to Italy’s. In 1978, when the dictatorship ended and the democracy was established, Spain’s GNP per capita was only 62% of Italy’s. That was the economic cost of having a fascist dictatorship."

According to Navarro one of the reasons Greece, Spain, Portugal and Ireland have huge public debts is that the income of their states is much less than that of other Eurozone countries. This, again, has its historical roots, as Navarro explained in a recent interview with him held by students of the Pompeu Fabra University:

"...históricamente han sido muy dominados por fuerzas profundamente conservadoras representantes de los mayores poderes financieros y económicos del país, así como de sus clases dominantes, que configuraron unos Estados que favorecieran sus intereses, entre los cuales predominaban unas políticas fiscales muy regresivas. Es decir, que las rentas del trabajo pagan impuestos mucho más altos que las rentas del capital sin olvidar que son Estados en los que existe una enorme impunidad y tolerancia hacia el fraude fiscal en el que incurren predominantemente aquellos grupos y aquellas clases. Esto ocurre en España y en Grecia, y también en Portugal e Irlanda, donde los ingresos al Estado, incluso hoy, han sido más bajos que el promedio de la Eurozona."  

The future

It is positive that we have thoughtful economists. But it would be even better if some of their good ideas are put into practice. In Greece the new government is trying to do that. Hopefully, the Greeks will receive support in the near future from a new government that Spain may get when Podemos wins the elections. According to polls the chances are high that Podemos would win if elections were held today.

Navarro ended his January 2015 Counterpunch article looking at the future. He said:

"The success of Podemos has become a major threat to the Spanish (and to the European) establishment. Today, the Spanish financial, economic, political, and media establishments are on the defensive and in panic, having passed laws that strengthen the repression. The heads of the major banks in Spain are particularly uneasy. Mr. Botín, president of the major bank Santander, indicated four days before he died (a few weeks ago) that he was extremely worried, indicating that Podemos and Catalonia were very threatening to Spain. He, of course, meant his Spain. And he was right. The future is quite open. As Gramsci once indicated, it is the end of a period without a clear view of what the next one will be. Europe, Spain, and Catalonia are ending an era. This is clear. What still is unclear is what will come next. We will see."

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