By Simon Bowden. This article was first published on The Guardian.
Greece’s prime minister, Alexis Tsipras, and Germany’s chancellor, Angela Merkel, meet at the European Union headquarters in Brussels on 7 July, ahead of an emergency EU summit after Greeks voted no to further austerity in a referendum. Photograph: Philippe Wojazer/AFP/Getty Images
The never-ending austerity that Europe is force-feeding the Greek people is simply not working. Now Greece has loudly said no more (Greece given 24-hour deadline, 7 July). As most of the world knew it would, the financial demands made by Europe have crushed the Greek economy, led to mass unemployment and a collapse of the banking system, and made the external debt crisis far worse, with the debt problem escalating to an unpayable 175% of GDP. The economy now lies broken, with tax receipts nosediving, output and employment depressed, and businesses starved of capital.
The humanitarian impact has been colossal: 40% of children now live in poverty, infant mortality is sky-rocketing and youth unemployment is close to 50%. Corruption, tax evasion and bad accounting by previous Greek governments helped create the debt problem. The Greeks have complied with much of Angela Merkel’s call for austerity – cut salaries, cut government spending, slashed pensions, privatised and deregulated, and raised taxes. But in recent years the series of so-called adjustment programmes inflicted on Greece and others has served only to make a great depression the like of which has been unseen in Europe since 1929-33. The medicine prescribed by the German finance ministry and Brussels has bled the patient, not cured the disease.
We urge Chancellor Merkel and the troika to consider a course correction to avoid further disaster and enable Greece to remain in the eurozone. The Greek government is being asked to put a gun to its head and pull the trigger. Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the eurozone as a beacon of hope, democracy and prosperity, and could lead to far-reaching economic consequences across the world.
In the 1950s Europe was founded on the forgiveness of past debts, notably Germany’s, which generated a massive contribution to postwar economic growth and peace. Today we need to restructure and reduce Greek debt, give the economy breathing room to recover, and allow Greece to pay off a reduced burden of debt over a long period of time. Now is the time for a humane rethink of the punitive and failed programme of austerity of recent years and to agree to a major reduction of Greece’s debts in conjunction with much-needed reforms in Greece. To Chancellor Merkel our message is clear: we urge you to take this vital action of leadership for Greece and Germany, and also for the world. History will remember you for your actions this week. We expect and count on you to provide the bold and generous steps towards Greece that will serve Europe for generations to come.
Heiner Flassbeck Former state secretary, German federal ministry of finance, Professor Thomas Piketty Professor of economics, Paris School of Economics, Professor Jeffrey Sachs Professor of sustainable development, professor of health policy and management, and director of the Earth Institute at Columbia University, Professor Dani Rodrik Ford Foundation professor of international political economy, Harvard Kennedy School, Professor Simon Wren-Lewis Professor of economic policy, Blavatnik School of Government, University of Oxford
• Greece’s referendum on Sunday was a first for reasons hardly mentioned. On no other occasion has a country’s population been asked to approve or disapprove the conditions laid down by creditors for a country. The nearly 300 adjustment/austerity programmes required of countries in Africa and Latin America in the 1980s and 1990s were never put to a vote.
Instead they were negotiated behind closed doors by financial officials of the government with visiting bureaucrats of the IMF and the World Bank, often in secret even from other ministers of the government and elected parliamentarians. Usually, the only means for people to express their views was by demonstrations and protests, which became a not uncommon occurrence. A young World Bank official once told me that as his aeroplane was taking off from a Caribbean island for Washington, he saw people rioting in the streets. Having just negotiated an adjustment programme with that country, he wondered how much he was responsible.
Research has shown that the orthodox adjustment/austerity programmes in Africa and Latin America over nearly two decades had a strong statistically significant negative effect on economic growth in the long run. Asking the people is not only democratic, but may produce answers that the experts and politicians fail to recognise.
Professor Richard Jolly
Institute of Development Studies, University of Sussex
• A depressing dimension of the Greek crisis has been the alignment of the German Social Democrats, their powerful European parliament president Martin Schulz and most of the parliamentary socialist parties of the EU in favour of the neoliberal austerity agenda of Merkel and the ECB. Europe’s future is bleak, and sadly probably also that of all its socialist parties, from Pasok and PSOE even to Labour, if that remains the case.
Former Labour cabinet minister and MP, Neath
• The debt that the Greek government, on behalf of its people, is attempting to negotiate on is around £237bn. Compare that with the British government bank bailout which, at its peak, guaranteed £1,162bn to the banks. One bank alone (Deutsche Bank) got £226bn. It is to be hoped that the troika discovers the meaning of negotiation before we Europeans impoverish a people and their nation, and ruin the European enterprise in unimaginable ways. Golden Dawn will already be rubbing their hands.
Dr Karen Adler
• The fundamental analytical divide between the troika and the Greek government (and in the wider context between austerians and anti–austerians) concerns not the debt burden, but the impact of changes in taxation and government expenditure on GDP. Tsipras and Varoufakis, the spearhead of the anti–austerian movement, believe that attempts to improve the budget balance by cutting government expenditure and increasing tax rates are self–defeating because they merely drive down GDP and hence reduce tax revenue. Keynes called this “the paradox of thrift” and in today’s terminology it is often labelled a death spiral. In the face of all the evidence, the austerians deny this, persuading themselves instead that, through a mechanism that is never clearly spelled out, fiscal tightening will instead lead to expansion of GDP.
Department of economics, University of Warwick
• Any rescue plan that the Greek people would vote for would be rejected by a referendum in Germany (The euro will be stuck with austerity unless it learns to embrace democracy, 7 July). Conversely, any rescue plan the German people could approve would be rejected in Greece, as happened on Sunday. Without a rescue plan, the current rules mean that the Greek banks will run out of euros and thus default in a matter of days. Default is not a scenario catered for in the rules of the euro. Greece will have to leave the euro, and maybe leave the EU as well. Where Greece leads, other countries will inevitably follow. It may take years, but the euro can only survive if politicians go against the will of their own people. That has been possible in the undemocratic EU up until Sunday. Injecting democracy into the euro will ultimately kill the patient.