Thought for the Day: Greece unshackling?

Monday, 23 February 2015, 11:27 am
Column: Keith Rankin

Several years ago, Greece was slammed into the debtors' prison by a group of northern European countries led by Germany. The country only gets out of jail when its government has implemented policies that suit external creditor interests.

Not surprisingly, Greek government debt has increased since the implementation of austerity policies as a condition of debt rollover. It's hard to restore solvency while in prison!

Greek governments have done much of what was required of them. They have dramatically reduced Greek living standards by slashing wages and welfare; by obliterating the domestic market which is the lifeblood of normal economies. Greece has refocused its economy onto exports, but with no help from its northern neighbours.

In the first decade of the Eurozone, while trade was hugely unbalanced within the Eurozone (a massive flow of goods and credit from north to south), the Eurozone as a whole was in trade balance with the rest of the world.

The obvious solution for this decade would be for the trade flows within the Eurozone to reverse, with goods flowing from south to north, with debts being settled in the process. But no, the north is not interested. The north refuses to run the trade deficits necessary if its loans to the south are to be settled. The north wants to keep those loans unsettled, as assets.

What the north wants of Greece (and ipso facto of other southern Eurozone countries), is for the southern countries to run trade surpluses with out-of-Eurozone countries. This makes southern European debt look good on northern European balance-sheets.

The northern countries also want the southern governments to sell their public utilities (and anything else that they might own) to global plutocrats. That is what northern policymakers are really holding out for.

The strategy to get countries like Greece to run trade surpluses with non-Euro countries has been partially successful. First the BRICS (Brazil, Russia, India, China, South Africa – add Indonesia and Turkey) were running the required deficits (or smaller surpluses than usual), then the UK and the USA were helping by buying more imports.

The correct (non-imperialist) way to solve the problem of Greece's government debt is the exact opposite of the austerity programme. We actually see what's happening in the USA at present as an example.

In the US, the private sector is taking on debt once again and is spending (both investment and consumption). The result is reduced pressure on US government finances. Higher private incomes raise the government tax take. It's not rocket science. Further, many American businesses that had 'out-sourced' operations (eg to Mexico or India or China) are now returning (eg BBC here and here) to domestic production. They are finding that producing closer to their markets provides better economies than trying to pay the lowest possible wages; especially true as wages have risen in Mexico and India and China.

The key point about the negotiations between Greece and Germany is that the best way to achieve the putative objective (solvency of the Greek government) is to revive the Greek domestic economy so that Greeks can pay more taxes. Thus the removal of austerity is the critical prerequisite to Greek debt service. The Greek government prefers not to default and exit the Euro. It prefers to raise revenue from a revitalised Greek economy, and thereby fulfil its financial obligations.

The fact that the north European German-led austerity coalition can only see ongoing and dramatic reductions in Greek living standards as the means to the achievement of the north's objectives suggests that the objectives themselves are not transparent.

My guess is that the northern countries will change tack only when the Greek government has no more assets to sell. Then, when the Greek economy eventually revives, large income streams that would previously have gone to the Greek government will go instead to the new owners of those assets.

One writer on global economic issues that I have always appreciated is Anatole Kaletsky, formerly of the Times (UK). Here is his take on the present state of the Greek-German "poker-game".

ENDS

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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