“Interesting Times” Ahead for Euroland
byThe Levy Economics Institute of Bard College co-organized an international conference on November 21-22 in Athens, Greece, on the continuing crisis in the eurozone.
Among the speakers were:
• Elga Bartsch, Morgan Stanley’s chief European economist;
• Peter Bofinger, a German academic economist and a member of the German Chancellor’s Council of Economic Advisers;
• Marek Belka, governor of Poland’s central bank;
• Giannis Dragasakis, a Greek politician and member of the Greek parliament for the Coalition of the Radical Left (SYRIZA);
• Heiner Flassbeck, a former director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD) and former vice minister of the German Federal Ministry of Finance;
• Patrick Honohan, governor of Ireland’s central bank;
• Stuart Holland, a British academic economist teaching in Portugal and a former member of the British parliament;
• Stephen Kinsella, an Irish academic economist;
• numerous Greek economists, including Panagiotis Liargovas, the head of Parliamentary Budget Office at Greek Parliament; and, last but not least,
• scholars from the Levy Institute, including its president (Dimitri B. Papadimitriou), who heads the Institute’s macro-modeling team projects.
Adding to this rather illustrious list of speakers were panel moderators from The New York Times, Wall Street Journal, Bloomberg News, National Public Radio (USA), and various daily newspapers in Greece.
While there were some disagreements on policy matters among the panelists, it seems that most speakers reached the following conclusions:
1. Greece’s bailout program has failed miserably, as the country’s international creditors (the European Union and the International Monetary Fund) insisted on imposing draconian austerity measures, which led to a severe contraction in output and highly adverse welfare effects, including massive unemployment, extreme poverty, and widening inequality.
2. The policy designed for Greece was intended to punish the country for its alleged “profligacy,” rather than serve as a way out of the crisis.
3. Greece will be unable to recover from its current crisis without a significant haircut on the official sector debt holders. (Note that Greece’s public debt-to-GDP ratio has increased substantially under the so-called “bailout” program.)
4. In spite of historical experience that indicates fiscal consolidation during recessionary periods is harmful, Europe, under German leadership, opted for austerity policies in the aftermath of the global crisis of 2008, thereby making a bad situation even worse.
5. German economic policy is considered sacrosanct and not to be questioned, although expansionary austerity leads to catastrophic economic and social results and poses major challenges to the democratic polity, as it often engenders political extremism.
6. Germany’s insistence on far-reaching structural reforms constitutes a pretext in the absence of a long-term growth plan. Here, it is interesting to note that Peter Bofinger, the lone Keynesian on Chancellor Merkel’s council of economic advisers, made a mockery of the whole idea of structural reforms by stating that when he asked his German neoliberal colleagues to name just “three structural reforms” that Spain’s economy needs in order to experience a decline in its massive unemployment rate, which is at 25 percent, they could not name even one!
7. Growth in the eurozone has stagnated and future prospects for sustainable growth are highly unlikely without a major shift in the economic policies of the present, including the emphasis on austerity and balanced budgets.
8. The investment rate in the euro area has fallen significantly since 2008, a sure sign of anxiety among international investors regarding the future of European economies.
9. The design of the European monetary union contains structural flaws which, if left unattended, will lead to the breakup of the eurozone.
10. The non-euro-area member states of the European Union have no legitimate reason to join the eurozone.
The idea that the eurozone as a whole is in trouble cannot be denied as the crisis actually spreads from the periphery to the core. The German economy is now close to entering a recession, and things in France are going so badly that Marine Le Pen promises a referendum on leaving the EU, should she become president.
As argued elsewhere nearly three years ago, German-led EU policies are gradually turning the euro area into an economic wasteland. Five years after the start of the euro crisis, euro area unemployment is at 11.5 percent, poverty is increasing, the standards of living are declining for ordinary people, and euro-sceptic sentiments are spreading like a wildfire.
On a positive note, Greece’s SYRIZA is making inroads and will most likely win the next elections, while Spain’s far-left Podemos already leads the polls even though the party was founded less than a year ago.
What could happen economically and politically in the immediate years ahead is impossible to say, but as most presentations made by the speakers who took part in the Levy Institute conference in Athens last month made clear, there is every indication that “interesting times” lay ahead for Euroland.
(Cross-posted from Truthout)