‘FAILED: What the “Experts” Got Wrong on the Global Economy’ – Mark Weisbrot (1/3)
CEPR economist Mark Weisbrot says the failures of the Eurozone and European economies are due to unaccountable, unelected authorities who have taken control of fiscal policy in order to remove social and economic protections for ordinary people
SHARMINI PERIES, EXECUTIVE PRODUCER, TRNN: It’s the Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
The latest crisis spot for the global economy appears to be Italy. This week the world’s oldest bank, Monte dei Paschi di Siena, had to be rescued. Further, the Eurozone’s recent stress test on banks showed [worrying] signs of the European financial crisis of 2011 still lingering five years later.
Meanwhile, Latin America passed through an important period of economic growth between 2000 and 2015, but it is now facing new economic difficulties in countries such as Brazil and Venezuela, Argentina.
The IMF, which for a long time served as the world’s main enforcer of neoliberalism, last month signaled that neoliberalism might just be oversold. Apparently neoliberalism has resulted in greater inequality and lower economic growth.
Well, we are going to talk about all of this and much more with our very special guest here in our studio, Mark Weisbrot. Mark is the offer of the recently published book, “Failed: What the Experts Got Wrong About the Global Economy.” Mark is the co-director of the Center for Economic Policy Research and is the president of Just Foreign Policy. He’s also a syndicated columnist.
Mark, I thank you so much for being with us today.
MARK WEISBROT: Thanks, Sharmini. Great to be with you.
PERIES: So Mark, I thought we would tackled your book in three segments. We’ll take up Europe, and then in the second segment let’s do the IMF, and in the third segment let’s take up Latin America.
PERIES: Okay. So, let’s start with Europe first. Now, as I mentioned in the intro, Italy is going through a huge crisis, a banking crisis and a long term, actually a six-year recession, and coming out of it is going to be difficult. What can we learn from this experience of Italy?
Now, I know back in 2011, according to your book, you were still writing about the potential crisis Italy’s going to face. So, what did the European Union do to Italy to make sure that it would not come out of this recession.
WEISBROT: Well, the problem of Italy is the problem of the Eurozone. And it’s not just these structural problems. You know, people talk about having a common currency in countries that really may not have the qualifications to have that common currency. That is, they may not have–they have different rates of productivity growth, or they have other things that would put them out of whack, or they don’t have a common fiscal policy to go with having a common monetary policy.
And these things are true, you know, and economists point this out. But I think, and one of the reasons why this is becoming such an issue everywhere–I mean, you had Brexit, which is, you know the people voted to leave the European Union in the UK, which is not even a member of the Eurozone. It’s kind of ironic. They’re not suffering the way Italy and Spain and Portugal and Greece have suffered from, you know, having, being part of this failed currency union. And yet they voted to leave too, because these are questions of democracy and national sovereignty over economic policy.
So, I guess the most basic problem in the Eurozone and what makes it a special case compared to problems in other places in the world, the problems you mentioned in Latin America, is that they gave away their control over the most important economic policies that any government can have, and they gave it to the wrong people. [laughs] They gave it to people who really didn’t have their best interests at heart.
And when I mean the most important economic policies I’m talking about, well, first your monetary policy, your interest rates and money supply, the things that the Federal Reserve decides for us here in the US. Well, the European Central Bank is deciding that for the European–you know, for the Eurozone, for the 19 countries in the Eurozone. And that is a very dangerous situation. And that’s just one part of it. Of course, exchange rate–
PERIES: –How does this manifest itself? When you say it has given up control, we know that in years gone in the past, before the Eurozone, countries like Italy and Greece, these were, you know, robust economic countries. In Spain as well. So, what happened? What did they give up control of, exactly?
WEISBROT: Well, when you join this currency union you adopt this single currency. So immediately you don’t have the ability to use your currency, your exchange rate, you know, between your currency and other currencies of the world, as a policy choice. That’s kind of important right there.
Because, for example, if you’re running a trade deficit, one of the ways to reduce that is to devalue your currency, and then your imports will go down because they become more expensive, and your exports will increase because they become cheaper. So, that’s one tool of economic policy that you automatically don’t have when you don’t have your own currency. And of course that was a problem too, because you had Germany still running these big trade surpluses, and then other countries were running deficits, and then they ran into trouble from that.
But then you have, even more importantly, you have a central bank that you don’t control, and the central bank is very important when you run into trouble. You know, in Greece, for example, the European Central Bank did something that probably no central bank has ever done in the history of central banking. They actually, in order to try to force the Greeks to vote the way the wanted in the referendum on the austerity policies, they actually–and then, you know, after they voted no–they shut down the Greek banking system. They caused a deep financial crisis deliberately to threaten, intimidate and punish the Greek people for not accepting the decisions of the so-called Troika, and also I would add the finance, the Eurogroup of finance ministers.
So, this is what they did. And so these countries, Greece and Spain and Portugal and Ireland, they found that they not only lost control over their exchange rate policy, their monetary policy and interest rates, but when they got into trouble they lost control over their fiscal policy. Their budget policy, as well, was being dictated by these unaccountable, unelected authorities. And I think that’s where the democracy and national sovereignty questions are so paramount.
In theory, it wouldn’t be such a bad thing to form a currency union. I mean, the United States has one currency for all of the United States. We’re economically integrated, okay, so–And you could conceivably do that with a group of countries that was economically integrating, not–you know, at a steady pace, as Europe was. But you can’t have it with authorities that have a whole different agenda, and that’s the thing that I wrote about that I think has not been emphasized enough.
That is, these European authorities: the European Central Bank, the European Commission, the Eurogroup of finance ministers which, as Yanis Varoufakis, the former finance minister of Greece always points out, is not even a legitimate group. There’s no legal basis for it. And then of course the IMF was brought in as well, so that’s the four of them.
They had a political agenda. They wanted to change Europe in a way that would diminish the social and economic protections that they have. And this isn’t a conspiracy theory. You can see this. There are hundreds of pages of documents showing that they wanted t ocut health care spending, they wanted to cut pension spending, they wanted to reduce the bargaining power of labor.
In June you had all these strikes and protests in France. That’s what that was about. The government tried to implement a policy which basically made labor’s, reduced labor’s bargaining power by making it harder for them to bargain in a sector rather than individually against companies. And this was done in Spain as well.
So they had all of these changes that they wanted to make that would, you know, redistribute income upward, obviously, and make Europe a lot more like the United States–a much smaller welfare state and much reduced social and economic protections.
PERIES: Mark, what’s interesting about some of the countries you mentioned, Greece for example. France has a socialist government, Greece has Syriza. Now even if you look at Italy, you know, we finally got rid of Berlusconi and we have a government that came to power as a result of having, you know, criticized the agenda of Berlusconi and corporate sector. However, they’re highly unsuccessful in trying to change the psyche of how Eurozone is governed and their role in it. Why?
WEISBROT: Well, it is complicated, and that’s why I say it is kind of a special case. Because, you know, something like this wouldn’t happen in the United States, for example and it is really different. They have twice the unemployment rate that we have right now because of these terrible economic policies.
Here, you know, even if Mitt Romney had been elected in 2012 he wouldn’t have done the kinds of things that you see in Europe. He would have wanted to get re-elected. And that’s why I say the democracy question is so important, because they’re stuck in this thing. They really would have to leave the Euro to fix these things in a reasonable amount of time.
PERIES: And you advocate that in the book–
WEISBROT: –Well, I–
PERIES: –That in countries like Greece, you know, they might have been better off leaving the Eurozone. But is that feasible? I mean, obviously these left governments didn’t think that they could do it and manage it. So, is that a reality?
WEISBROT: Yeah. I don’t really say they should leave. I mean, I do say, and I think a lot of economists would agree that Greece, for example would have been much better off today if they had left back in 2010 when they were operating under their first IMF agreement that everybody at the time knew was just going to make things worse, and it did–worse and worse and, you know, seven years of depression already. So, you wouldn’t have had that if you left.
And then you can see, by just looking at other financial crises in the last, you know, 20 years or more that involve devaluations, you know, because nobody suffers that long, you know. You can look at the Asian finance crisis, you can look at what happened in Argentina. And yeah, things do get worse before they get better, but in Argentina it was just a few months and then they recovered very rapidly. So they’re really stuck, you know?
You know, you have this in the United States. Sometimes the Obama administration and people who support it will claim that they saved us from a Great Depression. Well, that’s not exactly true. You don’t get a Great Depression even from the bursting of a 8 trillion dollar housing bubble like we had in the United States. You get it from repeatedly doing the wrong things over years at a time. That’s what they’re doing.
So, why don’t they leave, is the question, right? And that’s complicated, because it’s political and it also has to do with not understanding the economics. I mean, that’s one of the reasons that I wrote this book, was because I see, you know, all over the world you see policy decisions that are made not only because the people making the decisions have some combination of misunderstandings and bad intent–okay, they believe some of what they’re doing and some of [it] they’re doing for bad reasons, like in the Eurozone.
But also because the people don’t really understand economic policy as much as they need to, and I think if they really understood what the Eurozone was doing to them, yeah, there would be a basis for these governments to leave, a popular basis for them to leave.
PERIES: One things about the popular movements that was behind Syriza and now the unity government in Greece and the prolonged crisis, economic crisis that they have been in, they have a highly educated class of people now who can–ordinary people–who can actually talk about how the economy’s impacting on them, and when we were there in Greece last year and then this year, always heartened to find out how much they can talk about what’s happening–
WEISBROT: –No, that’s right–
PERIES: –Day to day in the banking system or to their mortgages, or what’s happening as a result of cutbacks and privatizations and so on. So, it is creating a better-educated working class and unemployed youth that are also coming into the fold of these protests. But they knew when they voted no to the referendum in Greece, the people knew what they were voting for might mean that they might be leaving the Eurozone.
WEISBROT: Well, it’s not clear. I mean, that was June 5, I think, of last year, and the people voted overwhelmingly, 61 percent, to reject the latest austerity package from the European authorities. But they didn’t vote to leave the Euro. They thought the government would go back and the European authorities would make some concessions. So you didn’t have that.
I think, you know, it’s hard to say. I always hesitate to judge people in these situations–very tough choice for Syriza in some ways. I think they should have gone in and said, you know, we’re not going to accept it, and then let the European authorities push them out. But they never really were going to do that. I think once the German government and its allies and the whole European quartet realized they were never going to leave, they just crushed them.
And, you know, even President Obama was quite worried about Europe for a while, and he was putting pressure, I think, there was a lot of indications that this government was putting pressure on the Germans not to push them out of the Euro, but once he realized that they were never going to leave, then he didn’t bother saying anything either that would pressure them.
So that, they had, I believe they had some bargaining power but they never used it, so we don’t know what would have happened if they would have actually said no. It’s possible that they would have made some concessions.
PERIES: Mark, the decision of the British people to follow through with the Brexit was profound. What does this mean for Europe now? And also if you could comment on the fact that whether UK maintained any of their national sovereignty and the ability to have more control over their economic policy as a result of not being a part of the Euro?
WEISBROT: Well, I think there’s some, because remember, they’re not in the Eurozone, so they did have–and this helped them a lot with their recovery–they had their own central bank, and they used monetary policy and quantitative easing like the Federal Reserve did here much earlier than they did in the Eurozone, and so their unemployment rate is lower there, much lower than the Eurozone, and they did do better, but not as, of course, as well as they, not nearly as well as they could or should have.
On the other hand, they’re still part of this European Union, and the European Union also has a neoliberal project. It’s, you know, they still are, for one, they have this fiscal pact that agrees that governments will have to reduce spending, for example, and keep their–even from current levels today–and keep their deficits below a certain level. And the UK is part of that, too.
Now, I wish I could say that people voted for Brexit for all those right reasons, but they didn’t. It was a demagogic, anti-immigrant and racist campaign. But nonetheless, you know, it is related to the troubles of the rest of the whole European Union and the Eurozone, because there is still this European, this neoliberal project within the European Union that does, it hurts the UK as well.
PERIES: Now, what options are there? There are some changes in Europe you see with Syriza in power, maybe there’s a situation in France, you know, if they would actually govern with their platform, the Socialist Party of France. You have the possibility of leftward shift in places like Spain and Portugal, of course. Now, there is a shift going on in Europe. Do you think that would help in terms of setting better economic policy for Europe that would benefit ordinary people?
WEISBROT: Well, I think, I mean, it is going in that direction. What happened is, the center left kind of collapsed because they supported the austerity. So, for example, in Greece you had the socialist party in Greece, PASOK, which got over 40 percent of the vote for 40 years, and then they had something like four or five in the last election. So, that’s because they supported the austerity. Now, in that country, of course, most of their support went to Syriza, it went to the left.
But it doesn’t always go that way. In France a lot of it is going to the right, okay, so it depends. In Spain a lot of it went to Podemos, the left party. That is, the center left lost its support to the left, not to the right, so they’re moving forward some. Podemos is the third-largest party, something that was just created a couple years ago. [It’s] actually, they had a coalition in the last election with Izquiera Unida, the United Left.
So it really depends where it goes at the national level. It depends what kind of leadership you have. I think Spain and Greece both had some good leadership on the left that was able to pull the disaffected voters from the center left over to the left. I think it’s going to have to change like that, because the Eurozone is so structurally–I want to say corrupt, but it’s much an ideological and a power corruption as it is the influence of the big banks, for example. It’s really so structurally neoliberal that you’re going to have to have better governments in the individual countries that can really either leave or force it to be a different project.
PERIES: And finally, why is it in the interest of the Draghis of the world, or the neoliberal champions in Europe, why is it in their interest to push back, you know, the ordinary people and the basic economic rights that they should be allowed to the point that it is threatening the Eurozone itself?
WEISBROT: Yeah, that’s a very good question. It’s a complicated question because it isn’t just the interests, for example, the big banks. I mean, they lost a lot. They took a 50 percent haircut, you know, in Greece, for example, that they could have avoided if they had just made some concessions and restructured the debt back in 2009. [It] would have taken very little money and they wouldn’t have had a–They lose money too, in this. You know, the stock market in Europe is way down. So it’s not like elite and the richest people in Europe are really benefitting from this terrible recovery as compared to the recovery we had in the United States.
And I think it’s because, for both their own material interests but also their ideological interests they really want a different kind of Europe. They don’t like the social Europe that people created over decades of struggle for a welfare state, for public pensions, for universal healthcare, for unemployment insurance other job protections. They can’t take all that away, I mean–But they’re hacking away as much as they can because they–They have a whole set of arguments for why this is going to eventually produce something better, and some of these things they actually believe, and some of them they’re doing because they have big corporations and banks that just want them.
PERIES: All right, Mark. Thank you so much for joining us and let’s continue talking about, in our next segment, the role of the IMF in terms of moderating and facilitating the global economy.
WEISBROT: Thank you.
PERIES: And thank you for joining us on the Real News Network.
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