Austerity or Prosperity


Walter Benjamin once said that “every fascism is an index of a failed revolution”. In that sense, the election of 21 members of the neo-Nazi party Golden Dawn to the Greek parliament could be characterised as the revolutionary failure of the century. Progressive forces in Greece have indisputably been unable to stop the wave of neoliberal austerity measures imposed by the “troika” (the IMF, European Central Bank and EU).

Leftwing politicians and academics predicted the debt crisis and even proposed radical solutions including default and bank nationalisation – but they failed to mobilise Greek society. Their voice was muzzled by the mainstream media, distorted by government officials and, most importantly, nullified by foolish internal antagonisms.

Nevertheless, the frightening revival of fascism in Greece cannot be attributed solely to failures of the anti-memorandum forces. It was the main political parties of Pasok and New Democracy who opened the parliament’s door to rightwing extremism. Their austerity frenzy not only destroyed the main pillars of Greek society but also legitimised deeply undemocratic procedures. The constitution was circumvented several times to allow for non-elected officials to implement policies limiting workers’ rights.


“The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,” said Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, in an interview. “It’s the broadest agreement that’s been undertaken.”

Without the relief, homeowners would have buckled under the weight of their loans after the ratio of debt to incomes surged to 240 percent in 2008, Matthiasson said.

Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.

Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”

We still have ridiculous amounts of housing and consumer debt to deal with in this country, most of it owed to banks whose own policies had much more to do with the creation of the debt than any unreasonableness on the part of the people who are now responsible for paying it back. If we actually want a healthy economy, which strategy should we be using?

Austerity or Prosperity
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7 thoughts on “Austerity or Prosperity

  1. 1

    Which example? Well, since we know beyond doubt that European examples are always bad, the cautionary example of Greece must be correct: that Greek fiscal problems are entirely due to excessive social spending and have nothing to do with the lowest tax collections and highest military spending in the Eurozone.

    As for Iceland, well, they’re basically Scandinavian (like Norway, Swededn, and Denmark) and are by definition socialist hellholes. No good can come of anything they do.

  2. Art

    Used to be, a few centuries ago, that failure to pay on a deal you signed (even those signed duress) meant the larger/richer nation’s army showed up to collect on what was owed. Plunder and/or exploitation under occupation helped balance the books.

    Problem with this is that war isn’t cheap any more. What we spent in Iraq is several times the figures often quoted because the long term costs aren’t included. The Brits will never recover the cost of the Falklands war given the GNP of the Falklands in mutton and wool. Not even the projected presence of oil might not fill that hole.

    The real problem here is not what was lent, that could be paid off over time, the problem is interest on those loans. Eliminate the past and future interest and Greece doesn’t owe that much. Greece could simply unilaterally renegotiate the terms of those loans to be limited only to the principle. It isn’t like Germany and France are going to march an army down there and demand payment.

    The problem for the banks and finance folks is that the interest has already been churned into their bottom lines. Which, as an old boss used to say, sounds like a personal problem.

    Rules for banks need to get back to making sure you get collateral and not lending what you can’t afford to lose. Banking was both simple and boring when loans were seen as eggs unhatched instead of a guarantee of income.

  3. 4

    @D.C. Sessions: Damn, sarcasm and irony are hard on the web…if not for the context, I’d have taken your statement for serious, so well did you catch the tone.

    @Art: let me throw some MMT thought your way – a government issuing its own free-floating currency at monopoly conditions (like the US) can NEVER run out of money (after all, they’re the ones “making” the money) and can therefore ALWAYS pay back any debt in its own currency. Greece’s problem is not the size of its public debt but the fact that it’s held in a currency it doesn’t have any control over – the Euro. Prime example for this mechanism is Japan which has a public debt ratio of 200% yet pays insignificant yields on its bonds because the financial markets know that they’ll never default.

    Which then leads into larger consequences: the US, being never in danger of running out of money (UNLESS artificial political constraints are implemented that constrain money issuance) could buy up all houses currently being foreclosed at market prices, rent them to the current owners, and sell them back to them in a decade or so. It could furthermore create public jobs, e.g. for improving infrastructure, environmental cleanup, teaching/university positions, to get millions of jobless back into salaried work, creating a stimulus to domestic demand, boosting the economy – IF the political will were there.

  4. 5

    It should be noted that the conservative German* government who is currently doing everything in its power to ruin everybody else via austerity ran a record debt to finance a pure Keynsian growth program.

    *I’d apprecite if people stopped talking about “the Germans” in this context. I know that Stephanie doesn’t and has been very carefull to name all the major players, bt I’ve seen more of it recently than I’m comfortble with

  5. 6

    It should be noted that the conservative German* government who is currently doing everything in its power to ruin everybody else via austerity ran a record debt to finance a pure Keynsian growth program.

    Nope, wasn’t purely Keynesian – they also made sure to reduce real wages to decrease unit-labor cost and thus export more. I don’t think Keynes was hot on reducing workers’ living standards.
    Also, the Social Democrat/Green government and the Conservative/Social Democrat grand coalition preceding the current Conservative/Market-liberal coalition ran the same strategies. In fact, the attack on workers’ and unemployeds’ standards of living was a project of the Social Democrat chancellor Schröder.

  6. 7

    In fact, the attack on workers’ and unemployeds’ standards of living was a project of the Social Democrat chancellor Schröder.

    No need to lecture me on that 😉
    I was referring to the “Konjunkturprogram” with the handy money you got for buying a new car, the peanuts they gave to families and many more. They made sure the German companies weren’t suffering that much and they didn’t give shit about the money it cost.
    Of course, they’re using that debt now to milk the famous 99% to the extreme…

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