Episode N° 1 in our series on the crisis in the European Union :

IN GREECE AND ELSEWHERE, REFUSE AUSTERITY PROGRAMMES AND THE EROSION OF DEMOCRACY

by the Mouvement Politique d’Education Populaire (MPEP)
(A political movement combining political action with continuing education)

translated from the French

Summary

In many countries, public deficits and national debts have been accumulating in recent years. The American “subprime” crisis, caused by excessive private debt, provoked an increase in public debt in 2008-09, due to the bank-rescue programmes and “economy relaunch” measures taken by governments. The average public deficit in the Euro Zone countries more than tripled between 2008 and the end of 2009, increasing from 2% to 6.3% of the GDP, while national debt rose from 66% to 78.7% of the GDP between 2007 and the end of 2009.

The phenomenon of debt and deficit will be dealt with in detail in a future episode of our series on the crisis in the European Union. For the moment, suffice it to say that the principal cause of these debts and deficits is a major drop in revenue from taxes on capital and the wealth of the richest classes of society. Government programmes for rescuing banks and relaunching the economy during the 2007-09 crisis are a second cause. In addition, the interest paid by governments on the debt itself is more and more costly, since the central banks - which are now “independent” - can no longer lend to States.

To cover these deficits and debts, States borrow on “financial markets” (banks, pension funds, mutual funds, hedge funds...), through the issue of government bonds. But when States are deeply in debt, the credit rating agencies responsible for evaluating the risk of default give them bad “grades”, which leads to an increase in interest rates on their loans. And of course these higher interest rates further increase the deficits and make it necessary to borrow still more money . . . . It’s a vicious circle.

To repay at all costs the financial markets who have lent money to the States, the European Union and the IMF (but also the governments of the countries concerned) demand austerity policies, designed to make funding available for the reimbursement of debt. Since such policies are likely to provoke, as well they should, a movement of public protest (though such protest has not arisen in all Euoprean countries !), restrictive measures are then taken to limit democratic rights. The European Union and the IMF are thus able to “help” these countries (“help” is the official term used in the European Union’s propaganda) by granting them loans at interest rates below those of the financial markets, precisely so that the countries can go on to repay their debts to these very markets (particularly to the banks). Such “aid” comes with strings attached, called “conditionalities” or “structural adjustment programmes”, which demand generalized austerity and the restriction of democratic liberties.

The crisis in the European Union began in Greece. To meet its financial needs (civil servants’ salaries, budgets for schools, hospitals, firemen, police, transportation... and interest on loans, as well as the repayment of loans by the agreed dates), Greece needed to borrow about 54 billion euros in 2010. At the end of February, 13 billion euros had been borrowed on the financial markets. The crisis began when the Greek government announced that it would not be able to reimburse a loan of 8.5 billion euros which was due on 19 May 2010.

On 15 April, for the first time, the Greek government requested discussions with the European Commission, the European Central Bank and the IMF.

In 2009, the population of Greece was 11 million (2.2% of the total Euro Zone population) ; its GDP was 242 billion euros (1.2% of the European Union’s GDP) ; its national debt amounted to 112% of its GDP (3.6% of the total debt of the Euro Zone) ; its public deficit was 13.6%.

The financial markets saw in this situation a risk of default (total or partial non-reimbursement of loans and/or interest). Interest rates on loans to Greece immediately began to rise. On 22 April 2010, the interest on a ten-year loan was 8.8%, almost three times more than the rate on loans to Germany. The rate for funding over a two-year period was 10.23%, which is 9% higher than for Germany ! These exorbitant interest rates made it impossible for the Greek government to continue borrowing on the financial markets. Since the European Central Bank is forbidden to lend directly to States, and the European treaties forbid aid to States through transfers of funds (which would “distort” competition), the eurocrats were forced to invent emergency arrangements for dodging the obstacles imposed by the ECB and the treaties. In April 2010 they came up with a hybrid system of bilateral loans from Euro Zone member States to Greece, in the amount of 110 billion euros over three years, of which 30 billion were provided by the IMF. The Greek government received 20 billion euros to avoid defaulting on a loan that had to be repaid by 19 May 2010. But this failed to “calm” the markets ; on the contrary, interest rates for Portugal and Spain began to rise, and a 750 billion-euro “precautionary” programme was set up for these countries during the European summit meeting held from 7 to 9 May 2010 in Brussels.

Thus, the theme of public debts and deficits is back in fashion, for the sole purpose of forcing the people of Europe to tighten their belts, in view of the current “crisis” and in the name of “common sense”. These arguments must be turned against the neoliberals and socioliberals who propagate them. Factual reality and a little critical analysis show that the genuine Left has all the grounds it needs for an aggressive mobilization, popularizing the idea that it is both possible and necessary to refuse austerity programmes, as well as threats to demoratic rights.

Mobilizations of unprecedented proportions and radicality must be developed to combat the extreme austerity measures affecting all of the peoples of Europe.

Many thanks to Shelley for the translation