Time to listen to the Greeks?

The thing about a crisis is that it’s a great moment to re-examine some fundamental assumptions about what on Earth you’re up to. And when it comes to the European Union and, in particular, the Eurozone such an examination is badly overdue.

No one in authority in the European institutions will see it that way, but what this means is that the Greeks may well have done them a service.

By voting massively to reject the austerity package being forced on them by the Troika of the European Union, European Central Bank and the IMF, the Greek people have sent us all an important message. It is that though the Greeks may be in serious trouble, and the difficulties there have to be addressed, it can’t be done exclusively on the backs of those least able to cope with it.

It is almost unthinkable that a modern economy should shrink by a quarter over five years. 26% of the workforce is out of work, and that figure reaches nearly 50% for the young. Pensioners have seen their pensions cut in half – pensions to which they had loyally contributed throughout their working lives. To behave in that way is to break any kind of covenant there may be between government and people – it is to say that even if you do what we ask you to do, and the law requires of you, we reserve the right to refuse you the reward we’ve promised, even if that plunges you into penury.

To say “no” to that kind of action is practically an obligation.

Guardian photo of young Greeks celebrating the "no" vote

Nor does it matter only to the Greeks. Austerity politics are being pursued in a great many countries, particularly across Europe. And yet we know they fail. Back in the 20s, in the last great crash of the proportions of the current one, the immediate reaction of the Right was to tighten belts and impose austerity – though, as ever, not on themselves, only on the poor.

The result was mass unemployment and back-grinding poverty. In Britain, we had the Jarrow Hunger marches, starving workers converging on London from the North. In the US, we had “buddy, can you spare a dime?”

Fortunately for all of us, the US had the genius to find a man of Franklin Roosevelt’s calibre to replace the austerity incompetent Herbert Hoover. He applied policies of public investment in large projects to stimulate the economy and return it to growth. And at last the problems of the slump began to be solved.

This time round, we’re dominated by people of the Hoover persuasion once more, and they’ve made Greece the test bed of their policies. Where, unsurprisingly, they’ve failed again. Even the IMF has admitted as much, in a report that was leaked last week: they conclude that even if it applies the austerity policies precisely as prescribed, Greece cannot sustain its debt.

What Greece needs is help not austerity. It needs debt relief so that it can start to invest in itself, and get itself back to growth.

And by the way – a lot of economic activity these days is in services, where you’re not manufacturing, you’re not even consuming an intolerable amount of energy, you’re just using people to provide service to other people. Growth, in other words, does not have to be environmentally disastrous.

The irony is that the entire Greek government debt works out at $630 per inhabitant of the Europe Union. If the EU took on half the debt and cleared it over ten years, we’d be talking about just over $30 a year per inhabitant. What’s that? The price of a cheap shirt?

In any case, no one’s asking for that extent of debt relief. The question we should be asking, though, is if we can’t make that level of sacrifice for a member of our own union that is in desperate trouble, then what is our union for?

The Greek referendum result poses that question starkly, to us all.

And we too should be asking it, of our governments. In Britain, for instance, government is about to take £12 billion out of the benefits bill. That may sound like a necessary retrenchment at a time of economic hardship. But what it really means is that £12 billion of demand will go out of the economy: recipients of benefits spend what they receive, so every penny goes into generating demand.

Is Britain really saving anything by making those cuts? Are other European nations or the US doing themselves a favour by seeking austerity solutions? Or are we making things worse?

The Greeks have given their answer. It might be a good idea to listen to them.

Greece and the EU: who's been betrayed by whom?

It seems that Jean-Claude Juncker, President of the European Commission, feels betrayed by the behaviour of the Greek government.

The purpose of a union is to create something that is greater than the sum of its parts. By pulling together, the nations of the European Union agree to work together, giving up some of their individual freedom of action, because they believe that in joint effort they can achieve more.

Within the Eurozone, the bonds are even closer, since the countries have given up control over their own currency, a major sacrifice when it comes to combatting financial difficulties.

Part of the bargain is that if any constituent of the Union gets into trouble, the Union as a whole rallies round to help. Now, following the financial crash of 2008, five EU nations, all within the Eurozone, were particularly harshly affected. These were the so-called PIIGS: Portugal, Italy, Ireland, Greece and Spain.

Several years on, all but Greece seem to have weathered the worst of the pressure. That’s not to say that they’re doing well. No one in the Eurozone is doing well. It’s stagnating as a whole,but that’s a not unexpected result of the austerity economics it has imposed on itself. Austerity cuts people’s spending power, so demand goes out of the economy and, as day follows night, the economy fails to grow.

Greece however is in a far worse state than the others. The EU, the International Monetary Fund and the European Central Bank, clubbed together to provide it with funding and to buy it some debt relief, but only at the cost of an even harsher austerity programme than the other nations underwent. As a result, unemployment rose to one in four of the workforce and, far from growing, the economy has shrunk by a quarter. A catastrophe.

Instead of banding together to help its weakest member out of the mud, the EU has inflicted on Greece policies that could only drive it far deeper still. While its membership of the Euro denies Greece the classic solution of devaluing its currency, as Larry Eliiott explains in The Guardian.

Guardian photograph from Athens:
graffiti expressing increasing anti-Euro feelings

So the EU has achieved precisely the opposite of what is intended in a Union.

The result is that it now looks increasingly as though Greece will, as long feared, have to leave the Euro, and perhaps the EU too, if only to have any chance of working its way out of the mess it’s in, with even a shred of dignity left to it.

Make no mistake about it. It would be extremely painful for Greece if it came to that. But it would be a disaster for the EU and the Eurozone. Greece is the first test of the capability of the Union to stand by a member that is in real trouble. They’re on the brink of failing that test. That inevitably raises the question “what is the EU for? If it can’t even rescue a relatively small member from penury…”

Angela Merkel enjoys a high and deserved reputation for her statesmanship. But it is she, and Germany more generally, that has led the campaign to inflict the harsh regime on Greece which it is now rejecting. If she can’t magic some solution out of the chasm in front of her at the moment, her legacy may be that of the leader of Europe who saw the experiment of union founder.

Larry Elliott’s article calls what we are facing now a “Sarajevo moment”. The assassination of the Austrian Archduke in Sarajevo in 1914 initially seemed to be a relatively minor event in a distant place. But within weeks it had engulfed the whole of Europe in the torment of the First World War.

The exit of Greece from the Union might be another minor event, but it will be a critical step in causing the EU project to start to unravel. The Eurozone will have shown that it is incapable of solving a problem within its membership. And the EU will have shown that it can’t look after its constituent nations.

Those of us in Britain who want the country to remain a member of the EU will find our arguments for staying in weakened in the run up to our promised referendum. And Eurosceptic movements in other European nations will also gain momentum. The impact on the Union could be lethal.

Someone has certainly betrayed the ideals of the European Union here. But, Mr Juncker, I’m not sure it’s Greece.

Bad news for the Greeks may be bad news for all of us

So the Greeks blinked first. And it’s not good news.

Greek Finance Minister Yanis Varoufakis:
the guts to denounce austerity but holding few cards

This week started with a pastoral letter from Bishops of the Church of England calling on its followers to get involved in politics and the General Election in May. They spoke great sense, which was encouraging, but weren’t echoed by any of the mainstream parties, which was galling.

That’s not a call for politicians to be Christians. A great many of them already claim they are, a claim with as much validity, I feel, as the claim of ISIS in Syria to be true Muslims.

The Bishops wrote:

Jesus said, “I came that they might have life, and have it abundantly” (John 10). A Christian approach to politics must be driven by this vision: enabling all people to live good lives, with the chance to realise their potential, as individuals and together as a people.

You need to be a Christian to want to quote St John, but men and women of any faith or none could subscribe to the notion that all of us should realise our potential and live good lives.

The Biblical tradition is not only “biased to the poor”, as often noted, but warns constantly against too much power falling into too few hands. When it does, human sympathies are strained to breaking point.

Again, many of us feel the oppression of power being exercised by too few people. And sadly far too few show much “bias to the poor,” even among parties of the Centre Left.

Why is this? Precisely because power has been allowed to be too concentrated.

This week gave an excellent example: the Daily Telegraph in England is one of the papers that prop up the Conservative claim to office; it seems it has been playing down the scandal around the behaviour of HSBC, the bank that was helping wealthy clients avoid tax; HSBC was the advertiser the Telegraph apparently couldn’t afford to offend; the Conservative Party is reticent to take action against the bank or its clients; and those clients include many substantial donors to the Conservative Party.

Money circulates in tiny circles, and money means power. The few inside the magic circle exert a terrible attraction on those outside, who look to them with admiration or awe at their success. The Centre Left, such as the British Labour Party, isn’t in the circle, but its leadership brushes shoulders with those who are, meeting them in the corridors of the Palace of Westminster. Rather than break with Conservative principles, it therefore simply proposes to apply them more gently.

So Labour doesn’t want to reverse cuts, only to cut less and more slowly. It has bought the prevailing tale that austerity is the answer to our financial woes, though austerity has manifestly failed over the last seven years, and has been known to be a policy condemned to failure for eighty: Keynes refuted the belief that economic good management requires government to spend less, and that to restart a broken economy, government in fact needs to spend more.

Not all parties of the Left have fallen for this delusion advanced by the moneyed, powerful few. And one of them, Syriza in Greece, has been elected to power. It has an explicitly anti-austerity platform, and has been pursuing it over the last few weeks since it took office.

Last night, days away from running out of funds altogether, the Greek government caved into the EU, IMF and European Central Bank – which basically means to Germany. in return for a four month extension of credit, it agreed to put its anti-austerity measures on hold.

The loans it will now receive will be used not to alleviate poverty, but to shore up the banks further. Money flowing to money once more.

This is a triumph for the Conservative views of the German government. Indeed, the German Finance Minister, Wolfgang Schäuble, could hardly contain his delight: “being in government,” he declared, “is a date with reality, and reality is often not as nice as a dream,”

Wolfgang Schäuble, German Finance Minister
A Christian Democrat with little Christianity
And old fox playing a handful of trumps, with an ugly line in gloating...

Reality, you see, means austerity. Even though we know that all it has achieved in Greece is drive citizens to despair, literally, with the saddest comments from that country being complaints at the lack of any hope whatever for the future. Yesterday’s decision will put the hopes excited by Syriza’s election victory on hold for a few more months at least.

The Bishops wrote:

Christ’s incarnation confirms the fundamental truth that every human being is created in the image of God. Because of this, we are called to love our neighbour as ourselves. This is the starting point for all of the church’s engagement with society, politics and national life. This is the truth that lies behind everything we have to say here.

Shäuble is a member of the Christian Democratic Union, so clearly calling yourself a Christian doesn’t stop you rejecting such basic Christian thinking. He’s clearly less than inclined to love his neighbours as he loves himself.

That he’s won this first round of the battle is a setback for the Greeks. It’s a setback for the kind of values the Anglican Bishops were propounding. And I rather fear it’s a setback for all of us who concerned at “too much power falling into too few hands.”

At the end of 2014: a glimmer of hope for 2015?

If 2014 had a dominant issue, it would have to be immigration.

Anti-immigrant feeling is on the rise across the rich nations, with some countries such as Britain, France and Sweden seeing brutally xenophobic parties of the far right advancing threateningly. Indeed, such views are affecting, or perhaps I should say infecting, the entire political establishment: the British government has even announced it no longer intends to help finance rescue missions for migrants left to drown in the Mediterranean. It seems a death sentence is a fitting punishment for people attempting to reach Europe illegally.

Citizens of a Christian nation show their compassion

Much of the hostility comes from significant sectors of the working poor, traditionally the natural supporters of the Left, so it too feels pressured to make concessions to views it should be resisting.

While there’s no excuse for it, the spread of xenophobia among the poor isn’t hard to understand. Men and women in unskilled work are on pay that barely allows them to survive. The alternative of eating or heating is starkly posed to many families, especially to the 622,000 (according to the most recent UK government figures) on zero-hour contracts, technically in employment but with no guarantee of either work or pay. It’s no surprise that Britain’s Trussell Trust, which was feeding 30,000 people at food banks in 2007, is now feeding a million.

Life for the poor is even more precarious because, in economies struggling to recover from the 2008 shock, redundancy is an ever-present threat. So yawning before them is the black hole of unemployment, an increasingly desperate state as benefits are reduced in the name of austerity, or withheld as increasingly stringent conditions of entitlement are imposed.

In these circumstances, it’s easy to believe that immigrants in unskilled work are taking jobs which might otherwise have gone to native-born unemployed. Many of these immigrants accept lower wages, so there’s the sense that they are undercutting applicants from within the country. When skilled jobs, for instance in healthcare, go to immigrants, that too can be seen as denying opportunities locally.

So it’s easy for the far right to whip up bitterness against immigrants. And yet it isn’t immigrants who introduced zero-hour contracts, but employers wanting to cut payroll costs. Nor do immigrants demand lower wages, they merely accept them as preferable to the conditions they’ve left behind. Nor, finally, is it immigrants who are keeping locals out of skilled work, but short-sighted economic policies that deny training opportunities to our young people.

The attraction of making immigration the issue is that immigrants are generally easily identifiable, whereas the corporate or political figures responsible for the real problems prefer to say out of sight. Immigrants become an easy scapegoat for all our ills, easy to fear, easy to hate. Parties based on humanity’s baser instincts, like UKIP in Britain or the Front National in France, rise on those feelings.

So it was refreshing, in this toxic atmosphere, to sense a glimmer of optimism at the end of the year. At the beginning of December, the OECD, the club of the most prosperous nations, published a study which, first, confirmed the blindingly obvious, that inequality is increasing, but then went on to assert a truth which badly needed stating: far from encouraging growth, inequality holds it back.

Estimated consequence of changes in inequality (1985-2005)
on subsequent cumulative growth (1990-2010) 

This is dynamite.

Firstly, it gives the lie to the Reagan-Thatcher sacred cow of trickle-down economics: let the rich grow richer, and their wealth will flow downwards to enrich the poor in turn. It turns out that enriching the rich just makes the rich richer. The only surprise is that anyone’s surprised.

Secondly, it shows that inequality doesn’t even encourage economic growth. Many once believed that it was better to have unjust distribution of a bigger cake, but the OECD shows that unjust distribution itself slows the growth of the whole cake. Increasing inequality between 1985 and 2005 held growth back by 8.5% on average across the OECD between 1990 and 2010.

It seems that fairness isn’t just morally preferable, it’s more economically efficient.

So, if all but a tiny minority of us are feeling poorer, it’s because we’re becoming poorer. The zero-hour contracts, the downward pressure on benefits, the cuts in public services aren’t about fixing the economy. They’re the necessary price of growing inequality, where the wealthiest 1% or even 0.1% prosper, but the least well off 40% see nothing grow but their suffering.

These are key notions, and all the more so since they’re being voiced in the wake of one of the more important publishing events of recent years: Thomas Piketty’s Capital in the 21st century. He shows, with real data to support his argument, that inequality is growing ineluctably. What’s more, while in the twentieth century there was a reduction in inequality in income, that trend is recent and by no means guaranteed. Nor has there been any corresponding reduction of inequality in wealth:

… the upper decile own 60 percent of Europe’s wealth and more than 70 percent in the United States. And the poorer half of the population are as poor today as they were in the past, with barely 5 percent of total wealth in 2010, just as in 1910.

Piketty’s central contention is that for as long as the rate of return on capital is higher than the rate of growth in the economy, the gap between the wealthiest in society and the poorest – note the depressing finding that half the people own less than 5% of the wealth – will continue to widen. And we now know this restricts overall growth.

Why do we allow this to happen? Because people with property of $100,000 or $200,000 think of themselves as on the brink of wealth, and believe their interests lie with the very wealthiest, those whose property is measured in the millions. They support measures to shore up inequality because they believe they may in time benefit from them.

Meanwhile the poorest, apparently impotent to change anything, with no voice in politics, look for an easy target. Blaming immigrants is a convenient way to explain their difficulties, and they rally behind UKIP or the Front National or their ilk.

But Piketty and the OECD, joined even by the IMF, have highlighted the real cause of their problems: inequality.

That’s what gives me some encouragement at the end of 2014. The terms of debate are beginning to change, at least at top levels of economic thought. Perhaps we can encourage some trickle-down in ideas, even if it has failed in finance. If the parties of the Left can find the courage to reject facile immigrant-bashing, and to challenge the failed economic wisdom of the Reagan-Thatcher legacy, then they may mobilise support for progressive change. Towards greater justice, and towards greater efficiency at the same time.

It wouldn’t be a moment too soon.

Happy 2015. I hope.