On February 7th, 2012, the BBC reported that the troika was finalizing the deal with Greece. What we must really ask is, what does this deal consist of, and will it help resolve Greece’s economic problems. In other words, is this deal right for Greece and for Europe?
http://www.bbc.co.uk/news/world-europe-16941929 (BBC Article)
In 2008, Canadian Economist Naomi Klein published an account of the international rise of the neoliberal economy. The story she tells in one whereby neoliberal economic principles arise in country after country in the aftermath of a crisis or shock. These crises have been both of the economic variety and of the more conventional sort, such as earthquakes, hurricanes, tsunamis, or even wars and military shocks.
The narrative is one of the overnight imposition of austerity, privatization, and cuts in wages and benefits via the circumvention of democratic means. This is ostensibly done as a form of crisis-response. As Klein tracks the imposition of these polices through crisis after crisis, one facet becomes clear, the details of the crisis itself do not seem to matter.
"Blaming the Locals"
This phenomenon as a response to the failure of neoliberal policies in country after country to create growth, improve people’s lives, or even restore pre-crisis normality. Essentially, proponents draw on Samuel Huntington-style arguments to explain the failure of the neoliberal policy changes. In other words, the narrative that emerges is one saying “it’s not that privatization and wage cuts are bad policy, it’s that the people in this country do not have sufficient work ethic and/or entrepreneurial spirit”.
The Greek Crisis
One thing about the crisis has become clear, the response to the crisis has become about austerity. The BBC reports that Greek austerity cuts include:
- 15,000 public-sector job cuts
- liberalization of labor laws
- lowering the minimum wage by 20% from 751 euros a month to 600 euros
http://www.bbc.co.uk/news/world-europe-16998157 (BBC Article)
As an economist, it worth noting that while lowering the minimum wage and making it easier to fire people will certainly increase poverty and unemployment, it is hard to see what upside this would bring. Within the economics profession, there is no consensus that these measure would in any way have a positive outcome.
Not surprisingly, the Greek public does not accept the economic suffering, and has taken to the streets, giving Athens its worse riot in years. 45 building have been burned so far according the BBC. Sadly, the BBC was more interested in covering the austerity deal than the resulting protests and riots.
http://www.bbc.co.uk/news/world-europe-17012604 (BBC Article)
As for fairy tales about improving competitiveness and “expansionary austerity”, this is the same thing that IMF experts told Argentina. How did things work out then? Sadly, there will always believe that “That is South America, such things will never happen here” Last year, Europeans believed that. In fact, the plain and simple truth that austerity leads to violence. If we can solve a crisis without it, then we should. What we shouldn’t do is allow ourselves to be swayed by phony doomsday arguments.