STOCK MARKET WATCH -- Thursday, 21 March 2013

[Demeter]

6. Greece: The Crisis Behind the Crisis and the Challenges Facing the Left

http://www.truth-out.org/news/item/15232-greece-the-crisis-behind-the-crisis-and-the-challenges-facing-the-left

Neoliberal policies created a disaster in the country now shredded by austerity measures. The Syriza party and the Greek left have much work ahead if they are to build a just and sustainable economic and social order.

When the global financial crisis of 2008 reached Europe's shores sometime in late 2009, the eurozone, with its faulty design and distinct neoliberal policymaking framework, experienced its first major crisis since the introduction of the euro as a single currency; the danger of an imminent collapse was suddenly all too real. From the beginning, there were warnings about the dire consequences of introducing a single currency into a region with sharp economic and cultural differences, but the European political elite turned a deaf ear on the skeptics.(1) European business interests were too big to be compromised over concerns about future financial busts or speculations about the risk of adopting a foreign currency without the backing of a federal treasury and a central bank acting as lender of last resort. Indeed, like the owner of the Titanic who told the captain to go full speed although several warnings had been received about icebergs ahead, European policymakers at the time could not resist the temptation to launch euro as a cash currency in spite of the fact that the Eurosystem was built on a weak institutional foundation. And they compounded the error by allowing highly problematic candidates to join the union, thereby violating the principles of optimal currency areas.(2)

Unfit to Join the Euro

The first crack in the EU wall occurred in Greece, the weakest link of the currency union. Economically, socially and culturally, Greece was ill prepared to join the euro when it did back in 2001, but the country managed nevertheless to do so mainly because of its legacy of contribution to the development of Western culture.(3) The nation's domestic political and economic elite were eager to join Euroland not just because of the perceived benefits, but also because they were very much in need of a psychological boost: if you are weak and marginal, and incapable of change and improvement, joining a group of strong and rich nations gives you the illusion that you are on a par with them.(4) Hence the hilarious statement of then Greek Finance Minister, Yannos Papantoniou, who described the joining of the euro as "'an historic day that would place Greece firmly at the heart of Europe,"' or the equally laughable statement of then prime minister Costas Simitis, who propounded that "we all know that our inclusion in EMU (European Monetary Union) ensures for us greater stability and opens up new horizons."

Apparently, both of these political midgets felt that what shapes a nation's economy is its currency, not its productive base, technological know-how, human skills, etcetera. Be that as it may, the euro produced, for the most part, a rocky ride for Greece (GDP increased, but both public and private debt levels reached new heights while competitiveness declined significantly) that ten years later crashed against the brick wall erected by international credit markets when they refused to extend further lending on account of the country's massive fiscal deficit and humongous public debt burden. And perhaps not without coincidence, both of the aforementioned euro cheerleaders ended up having reigned over the longest unbroken period of political corruption in the modern period of Greece, courtesy of neoliberal "socialist" governance.(5)

When the global financial crisis erupted, the Greek economy had already entered a downturn phase, with GDP expansion having slowed down in 2008. The industrial sector, in fact, had entered a phase of recession as far back as 2005. In 2008, the industrial production indicator had fallen by 4.2 percent and reached a 10 percent decline in 2009.(6) Yet, when the crisis initially reached Greece, everyone was in an apparent and inexplicable state of denial, including leading EU officials. Thus, in October 2008, Kostas Karamanlis, then Greece's prime minister and leader of the conservative New Democracy party, declared in a speech to his cadres that the Greek economy was largely "shielded" from the effects of the economic crisis thanks to the structural adjustments his government had initiated. And his main political opponent, PASOK leader George Papandreou, assured the citizenry that "there was plenty of money around" and that, if elected, his government would exhibit "'the political will"' to find money for the toiling population, just as it had been found for the bailouts of the banks. But the most problematic example of unwillingness on the part of leading public officials to recognize the trouble that lay ahead for Greece came from the EU chiefs themselves: thus, EU Commissioner Joaquín Almunia announced as late as February 2009 that "the Greek economy is in better condition compared with the average condition in the Eurozone, which is currently in recession...

MORE, WITH FOOTNOTES AT LINK