Summary: Previous posts reported economists’ explaining the roots of the Greek crisis, so unlike the simple morality play in the newspapers. This post looks at its politics, a narrative of victory by Europe’s 1%, a milestone on their 2-centuries-long quest to destroy the Left. Progress requires sacrifices, so examples have to be made — such as the people of Greece.
- Devastated Europe
- What’s the cause?
- The Right triumphant
- What happens next?
- For More Information
Image of Nike, goddess of victory. By Emanuel Lakozas. She no longer favors Greece.
(1) Devastated Europe
The crisis is one of Europe, not just Greece. As Paul Krugman shows, the people of Europe are paying a high price for their leaders’ policies. Due to its long-standing weakness and incompetent leadership, Greece is merely the worst affected.
Krugman explains the cause of these dismal results:
… what’s striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn’t — Spain’s story is all about private lending and a housing bubble. And Finland’s story doesn’t involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.
What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. Finland had a very severe economic crisis at the end of the 1980s — much worse, at the beginning, than what it’s going through now. But it was able to engineer a fairly quick recovery in large part by sharply devaluing its currency, making its exports more competitive. This time, unfortunately, it had no currency to devalue. And the same goes for Europe’s other trouble spots.
(2) What’s the cause?
The cause is often described as stupidity by Europe’s leaders. Journalist Ryan Cooper gives this hyperbolic assessment: “The eurozone has become a murder-suicide pact“.
Unity, prosperity, and democracy have been struck off the European monument. In its place are division, economic collapse, and an aristocracy of well-credentialed idiots.
The always-interesting Steve Randy Waldman at Interfluidity gives an even more passionate analysis.
Creditors have had five years to mismanage Greece and they’ve done a startlingly effective job. … Europe’s creditors are behaving exactly as one might naively predict private creditors would behave, seeking to get as much blood from the stone as quickly as possible, indifferent to the cost in longer-term growth. And that, in fact, is a puzzle! Greece’s creditors are not nervous lenders panicked over their own financial situation, but public sector institutions representing primarily governments that are in no financial distress at all. They really shouldn’t be behaving like this.
I think the explanation is quite simple, though. Having recast a crisis caused by a combustible mix of regulatory failure and elite venality into a morality play about profligate Greeks who must be punished, Eurocrats are now engaged in what might be described as “loan-shark theater”. They are putting on a show for the electorates they inflamed in order to preserve their own prestige. The show must go on. Throughout the crisis, European elites have faced a simple choice: Acknowledge and explain to electorates their own mistakes, which do not line up along national borders of virtue and vice, or revert to a much older playbook and manufacture scapegoats.
(3) The Right triumphant
Assuming elites are stupid is a reliable sign of a wrong analysis, usually resulting from belief that their goals are our goals (much like the “stupid” bankers who made millions before the crash — and millions afterwards). To guess at their intent, look at the results of their actions. The Right has gained near-total control of Europe’s governmental machinery and crushed the Left. The “Troika” of the European Commission, the ECB, and IMF are a 21st C version of the 19th C Holy Alliance of Russia, Prussia, and Austria — kings working to fight democracy and secularism.
This is the European version of the same forces pushing America’s Democratic and Republican parties to the right — with the GOP openly adopting the goal of rolling back the New Deal’s social safety net and regulation of corporations, shifting the tax burden from the rich to the middle class, and breaking the few remaining mechanisms for social mobility.
This is merely the current round in a centuries-long struggle for control of western states, and ownership of the wealth created by modern technology. Elites in the US and Europe were alarmed by the threat of the Soviet Union and communism (loosely allied State and ideological challenges), and so adopted policies to broaden their support. Now those threats are gone (and memories fading of their previous experiment with the Right), they unleash their appetites for more power and wealth. Examples must be made to show the consequences of dissent. Small, weak, peripheral Greece makes an ideal candidate.
(4) How this plays out
- I suspect the Troika (the EU, ECB, and IMF) have detailed and long-standing plans to contain this crisis, even should it become Grexit (exit of Greece from the euro).
- I believe the Greek government has done little preparation (perhaps not even planning) for this crisis, and even less for Grexit.
- This will end badly or very badly for Greece. The EU will provide humanitarian assistance, but its leaders will consider this a cheap lesson for the other members about the consequences of adopting even mildly Leftist policies.
- I suspect that the Troika will successfully contain the crisis. However, as we saw in 2008, sometimes these fires burn out of control.
Greece faces hard times if it remains in the eurozone — or if it leaves (it’s not the easy solution some believe). Its 25% drop in GDP since 2008 is among the worst in the developed world since 1870 (excluding those caused by war), similar to that of the US in 1929-1933. That was the nadir for the US; imagine if the decline had continued with no recovery in sight. Even nations reach the breaking point. It might collapse, becoming a failed state. Most such predictions are mindlessly linear extrapolations of current problems (my favorite is by The Guardian in 2009: “Will California become America’s first failed state?“).
Greece’s history since independence in 1830 has been one of sequential crises; this might tip it over the edge. As for the larger processes at work, so far the Right is triumphant, with no resistance visible. We’re in the pursuit phase of the contest between the 1% and the 99%. With their opponents scattered, the 1% consolidates their gains. We can only guess as the next phase of their plans, but we know there will be a next phase.
See the follow-up look at the politics of the Greek crisis: Germany’s treatment of Greece shows what the Right wants us to become.
(5) For More Information
To understand the how Europe fell into this hole I recommend “Greece, The Euro and Gunboat Diplomacy” by Karl Whelan (Prof Economics, University College, Dublin). “The original decision to provide a bailout is the source of the current crisis. Time for Europe to share the blame and financial consequences.”
For a deeper look see “Greek crisis: How Greece became Europe’s fault line” by economist George Magnus. Magnus recommends Modern Greece: What Everyone Needs to Know by Stathis Kalyvas (Prof of Political Science, Yale), which explains “the structural features and characteristics of the Greek state that have coloured the behaviour of its governments and people to this day. His book invites us to take a front row seat to observe the geo-politics of Europe that work, up to a point, to keep Greece in the euro area, and the politics in Europe that are driving Greece out of it.”
- Forecast: Can the European Monetary Union survive the next recession? Probably not. — July 2008.
- The Fate of Europe has become visible. Only how and when the break comes remains uncertain. — June 2012.
- The hidden goal of Europe’s leaders. See it and then their actions make sense. — July 2012.
Skipping ahead to the present…
- A high stakes cage match: Nationalism vs. the European Union.
- Today all roads in Europe lead to Greece, where its future lies in the balance.
- What can we learn from Greece’s crisis? It’s rich with lessons for America.