Why Save the Euro?
Mark Weisbrot: Euro was and is a right-wing project
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. In Europe, the financial crisis continues to spread. They’re calling it a contagion now, as if it’s some sort of airborne natural disease. Italy is being brought further into it, new austerity measures recently passed by the Italian parliament, and, of course, interest rates on Italian debt are going up, and all being said, done, and justified in the name of saving the Euro, ’cause if you save the euro, you’ll save the European Union. Well, Mark Weisbrot from CEPR recently wrote a piece and asked an interesting question: why save the euro anyway? Now joining us is Mark. So, Mark Weisbrot, ask your question again or answer your question. The assumption is, if you don’t save the euro, you’re going to lose the EU.
MARK WEISBROT, COFOUNDER, CENTER FOR ECONOMIC AND POLICY RESEARCH: Yes. I think it’s important for people to understand that these are two different things. You had the European Union for decades before you had the euro, and you had a lot of economic integration. So you don’t have to–you have one–you know, 17 countries in the euro zone. They have a common currency. But you have 27 countries in the EU.
JAY: And not all of them use the euro.
WEISBROT: That’s right. Denmark, Sweden, UK don’t have the euro. And so if Greece, for example, were to leave the euro, it’s not the end of the world or the end of the–even of the European Union.
JAY: Well, so who benefits from all the countries having the euro? And why would a country like Greece want the euro? I know it’s a big debate in Greece right now. Even a lot of the Greek left doesn’t want to give up on the euro.
WEISBROT: Well, there are a lot of advantages to a common currency. It’s, you know, just like we have the US dollar here for all the states. It’s–you know, it helps further the economic integration, the political integration that most Europeans want. The problem is that the euro zone–it has been formed under kind of neoliberal or, I would say, right-wing principles, where the central bank really doesn’t care about employment, a very right-wing central bank, much farther, way to the right of our own Federal Reserve, for example. And so here you have a crisis. And what is happening to the weaker euro zone economies–Portugal, Spain, Ireland, Greece, and now you mentioned Italy–they are being forced to do what–the kind of things that the IMF previously had only done to, you know, middle-income and low-income countries that were in its grip: basically, impose these policies that make their recessions worse, that raise unemployment, and force some of them into a downward spiral, the opposite of what most of the world did in 2009 during the world recession.
JAY: Which was stimulus.
WEISBROT: Yeah, what we did here. And, you know, the Federal Reserve here has also created $2 trillion in its quantitative easing, again, to help stimulate the economy. The European Central Bank is way to the right of that. They also have 1.5 percent interest rates, and where, you know, ours are zero, for the short-term rates. So they’re not looking–they’re looking at it from a creditor’s point of view. They’re really trying to squeeze as much debt service out of these countries as they can.
JAY: Now, one of the things quantitative easing did for the United States, one of the objective was to depreciate the US dollar. But Greece, because it’s part of the euro, I assume, can’t depreciate its currency, so it’s always in this situation where, like, if it wanted to increase its exports or depreciating a Greek currency, except they can’t, ’cause they are on the euro. Is–am I understanding it correctly?
WEISBROT: Well, that’s right. That’s one of the fundamental problems of having–not having your own currency in a recession: you cannot control your exchange rate. But also, probably more importantly, is Greece and Ireland and Portugal and Spain cannot control their two other most important macroeconomic policies, which are monetary and fiscal policy. So they can’t do quantitative easing by themselves. They can’t lower interest rates by themselves, ’cause that’s all up to the European Central Bank. And now they’re in a situation where the European authorities–and by that I mean the European Commission, the European Central Bank, and the IMF–are forcing them to go in the opposite direction of what is demanded by the public interest. And it’s really brutal. I mean, in Greece they’ve already cut, laid off 10 percent of the federal workforce and are planning, just to prove, to lay off another 15 percent. And, you know, the economy lost–GDP shrank 4.5 percent last year. It’s going to shrink something similar this year.
JAY: And what’s happening in Spain? There’s some recent news about the similar measures in Spain.
WEISBROT: Spain, they’ve taken some harsh measures too. They’ve raised the retirement age. They’ve also cut the public sector workforce. They’ve cut maternity payments. They’ve cut unemployment, long-term unemployment benefits. So they’re paying a price as well. And, again, the worst part about this is it makes it very hard for these countries to actually have a recovery. Spain is growing a little bit right now, but that’s mainly because of exports. That’s the only way out for these countries.
JAY: So the argument we keep hearing in the press is these countries, like Italy, Greece, Spain, etc., Portugal, are living beyond their means. That’s the–it’s really their fault.
WEISBROT: Yes. Well, and that’s really wrong. I mean, in–the overwhelming cause of this whole thing was the world economic recession. That’s what put all these countries into a unsustainable path, especially Ireland, where the whole thing, you know, vast majority of it, is just bailing out their banks. But Greece, you could argue, okay, they have tax collection problems, they have things that are internal to the country. But the point is, when you’re in this situation, this isn’t a time to just punish people for the mistakes of previous government. They have to get the economy going. And that’s what the European authorities won’t allow right now.
JAY: So if you were Greek or if they asked you your opinion, would you advocate, then, Greeks should get out of the euro?
WEISBROT: Well, I wouldn’t–I think that’s a decision that they have to make. But I think they have to have that option on the table and they have to go to the European authorities and say, bottom line is that we’re not taking any more punishment here. We–you know, if you can’t help us recover, then this is worse, then we’re better off outside the euro.
JAY: And what would be the downside of getting out of the euro?
WEISBROT: Well, there’s a lot of uncertainty. I mean, you would definitely face a financial crisis. A lot of, you know, people would want to take their money out of the country.
JAY: I mean, in theory, the bondholders and sellers would even be harder on you.
WEISBROT: Oh, yeah, it would be a very serious financial crisis. But, you know, Argentina did this, right? I mean, they defaulted. It would involve a default, but everybody recognizes Greece is going to default anyway. But this would be a more–probably more chaotic default if the European authorities allowed it to happen that way. But, you know, Argentina did this at the end of 2001 after 3.5 years of deep, deep recession following these–an IMF program similar to this, and it just made things worse. And then they got out, and everybody said they were going to suffer for years. They broke their link with the dollar, which is something similar to what Greece has with the euro.
JAY: If they did this.
WEISBROT: They defaulted on their debt. And they were denied access to international financial markets, and they still are to this day. But the economy shrank for just one quarter after the default, a pretty sharp decline, but only one quarter. And then they grew 63 percent over the next six years and pulled 12 million people out of poverty. And it was a very successful move on their part because they were able to get control over their basic macroeconomic policies, the three that I mentioned.
JAY: And is that an applicable experience to Greece?
WEISBROT: I think so. I mean, again, it depends if there’s any light at the end of this tunnel. That’s what they have to to weigh. You know, how many more years are we going to go through this, and what’s our economy and society going to look like [crosstalk]
JAY: Yeah, ’cause at the moment it looks like a decade of recession/depression in Greece and some of these other countries.
WEISBROT: And structural changes, too. They’re privatizing. You know, they’re trying to restructure, reduce the size of the Greek–inefficacy of the Greek welfare state. They’re trying to make–and a lot of regressive taxes. It would be nice if they just were making the rich people pay their taxes.
JAY: And privatization seems to be one of the main objectives. We did a story called "Picking the Bones of the Greek Economy", which seems to be a lot of what’s going on.
WEISBROT: That’s the European authorities, too. They don’t really like the Greek welfare state, and they want to take it apart [incompr.] take advantage [incompr.] taking advantage of the situation.
JAY: But also–and the public domain, public ownership of all kinds of sections of the Greek economy. They want to sell off even islands off.
WEISBROT: No, absolutely. And even that’s unrealistic from their own point of view, because a lot of this land is not going to be easily sold off.
JAY: Well, let’s–just to finish off, just go back, dig a little deeper. Why do you call this, the euro itself, a right-wing policy?
WEISBROT: Well, because it’s set up with a very right-wing central bank controlling not only monetary policy, but you can see in this crisis situation they’re also intervening in the fiscal policies of these countries in a very right-wing manner [crosstalk]
JAY: Which means austerity programs and–.
WEISBROT: Yeah. To me, the essence of right-wing policy is you care only about the interests of the creditors, and you’re willing to sacrifice enormously the interests of the vast majority of people for years on end in order to get the maximum amount for the creditors.
JAY: Thanks for joining us, Mark.
WEISBROT: Thank you.
JAY: And thank you for joining us on The Real News Network.
End of Transcript
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