European Leaders in Emergency Meeting Over Greece
The question is whether the euro itself can be maintained without Greece, says Ann Pettifor, the author of Just Money: How Society Can Break the Despotic Power of Finance
SHARMINI PERIES, EXEC. PRODUCER, TRNN: It is The Real News Network. I’m Sharmini Peries coming to you from Baltimore.
Two billion Euros have been withdrawn from the Greek banks this week. Greece is facing a banking crisis. Talks with European finance ministers to resolve the situation has repeatedly failed, most recently as of Thursday. The European markets appear to be fairly calm under the circumstances. To address the situation, however, and emergency meeting of European leaders have been called for Monday. Here with us to discuss what is on the table at the meeting is Ann Pettifor. She’s joining us from London, and is a director of policy research in macroeconomics at the City University of London, and the author of many books including Just Money: How Society can Break with the Despotic Power of Finance.
Ann, thank you so much for joining us this morning.
ANN PETTIFOR, DIRECTOR, POLICY RESEARCH IN MACROECONOMICS: Thank you very much for having me.
PERIES: So Ann, give us a sense of what is at the table when the European leaders come together to discuss Greece on Monday.
PETTIFOR: Well, the big issue on the table is whether or not the European leaders and their technocrats are willing to continue maintaining the Euro without Greece or with Greece. And really what this discussion is about is whether or not the Euro itself can be sustained. Now, as you say, the markets are very relaxed about Greece leaving the Euro. But everybody knows that if this dam breaks then other dams are going to break, too. That’s probably not the right analogy, but do you know what I mean, that if Greece can drop out other countries can drop out, too.
Now, the markets may not be alarmed about that on Monday or Tuesday, because as you say they’ve discounted that happening already. But the markets are highly irrational. And so what they’re saying now really doesn’t, from my point of view, throw much light on what they’re going to do tomorrow. We know for example they were very relaxed before Lehman’s, as well. So we really ought not to be taking our lead here from the markets.
The really big question is whether or not this corset, this straitjacket which is the economic framework of the Euro, can continue to asphyxiate, if you like, the countries within it without political and social upheaval and without financial crises, or whether or not it can enforce some kind of stability on the countries within the eurozone. I’m very pessimistic. I think the eurozone cannot survive, it’s not sustainable, and the question is only one of time.
PERIES: I think it appears that Syriza doesn’t want to be the cause of the breakup of the European Union. The European Union doesn’t want to be the cause of Greece breaking away. The IMF actually had a solution. They wanted to bail Greece out further as they did in Iceland. Why didn’t that proposal go through?
PETTIFOR: Mainly for ideological reasons, in my view. We know that the German finance minister, Mr. Schauble, is actually convinced of this notion of fiscal contraction can be expansionary. You can asphyxiate a country and it’ll then not just breathe more deeply, it’ll run faster, in economic terms. And that ideology is very deeply embedded in the treaties of the European Union, and in particular in the treaties relating to the European Central Bank and to economic policies.
And it’s an ideology which is dominant around the world. We have it here in Britain, you have it in the U.S. Congress, that austerity is a good thing. That taxpayers have to take the hit for private finance’s failure. That we can’t expect the private finance markets to deal with the market, in free market terms. We can’t expect them to be disciplined. They must not be disciplined. Instead we must, the taxpayers must take losses.
Now, that ideology is now embedded in the way in which, for example, Greece was bailed out, or at least–we should never say Greece was bailed out. The way in which the German and French banks were bailed out. And the burden of those losses were transferred to Greek taxpayers. We’re used to that happening in the United States, and we’re used to that happening here. And as we see in Britain, the people in Britain voted for more austerity.
So the ideology is very deeply embedded in the discourses, political and social and economic, in our countries.
PERIES: And this is really not really the scenario of Europe or the Troika bailing out Greece. This is really the Troika bailing out the banks, not really the Greek people. Explain that to us.
PETTIFOR: Well, what happened was in 2010, 2011 was that especially the German and the French banks had lent crazy money to borrowers in Greece that should not have been allowed to borrow money. But the entry of Greece into the eurozone made that possible. And the ECB and the European Union Commission sat there and pretended they hadn’t noticed this was happening, and indeed, allowed it to happen.
And the banks of course piled into Greece, because lending to borrowers who are risky is much more profitable than lending to, for example, the Germans, who are less risky–in the sense that they better off and they’re more likely to repay. So the banks piled in there because the short-term returns were massive. And they believed that the German taxpayer was backing them up, and that should we default on any of those debts they would be bailed out. And sure enough, they were.
PERIES: So it’s the people bailing out the banks, not necessarily the people bailing out Greece.
PETTIFOR: And this is the problem. And the German taxpayers believe that they’re bailing out Greek pensioners. Really they’re bailing out the German banks and the French banks, and they should be thankful to the Greek taxpayers for bailing out their bank. But this is not the case, and of course this is not the understanding or the awareness.
PERIES: You have done some piercing work exposing this. Now, in terms of Monday, getting back to what will happen on Monday. If you were at the table, Ann, what would you be saying to them?
PETTIFOR: Well, if I was at the table I would be arguing for Greece to be out of the Euro as soon as possible. I believe that the Euro is like the gold standard, and I remember that here in Britain in 1931, when Britain bailed out of the gold standard, everybody was told that it was going to be the end of the world. And government ministers said, but I thought we couldn’t do that. In fact it was very easy to do, and Britain went on to a massive recovery.
In 1992, Britain had joined the exchange rate mechanism, which had been operating for 14 years as a sort of preparatory exercise for the Euro. And in September ’92, Mr. Soros and others gambled that we wouldn’t be able to maintain our exchange rate at the rate that suited Germany, for example. And sure enough, they were right. We couldn’t do that. And we bailed out of the exchange rate mechanism, and we never joined the Euro as a result.
So we know that these frameworks, these straitjackets, don’t last. And so I would be saying look, let’s face reality and leave the Euro, if I was Greece. And I would personally argue for the dismantling of the Euro. But that would be a very marginal argument.
In reality what I think is going to happen on Monday is a deal will be struck. Because Syriza’s commitment to stay within the Euro, and the Greek people wanting to stay within the European Union, and the Greek people not making the distinction between the European Union and the Euro. Britain is in the European Union but it’s not a member of the Euro. Greece could be the same. But the Greek people don’t seem to have had that case made to them.
So my prediction for Monday is that they will do a deal, and that the European commission, European leaders, will capitulate. And will extend and pretend, will somehow extend the maturities of the debts that Greece earns, and they will agree to [defense] spending rather than pension cut spending–pension spending cuts, and Greece will struggle on for a little while longer.
That’s my prediction. I may be wrong. I hope I am.
PERIES: And that will mean more austerity for the people of Greece.
PETTIFOR: It will indeed. And it will mean that she will not any longer really have control over economic policy that suits the people of Greece. That will be determined, the interest rate and the exchange rate will be determined elsewhere. By on the one hand Germany, which will keep the Euro as a currency high, because everyone believes Germany will always repay, and because the European Central Bank is essentially in charge of interest rates.
So Greece doesn’t have the autonomy to fix economic policy to suit the people of Greece, and she won’t have that for as long as she remains within the Euro.
PERIES: Ann Pettifor, thank you so much for joining us today.
PETTIFOR: Thank you.
PERIES: And thank you for joining us on The Real News Network.
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