Monday, February 2, 2015

Why Turning Right Might Suit the European Periphery Better

All right, so I have suggested that Southern Europe is turning left instead of right because it does not have enough Muslim immigrants to fuel an anti-immigrant, anti-Muslim party.  But another element of the European right is its general hostility to the whole concept of the European Union. Left wing parties are indisputably unhappy with the Eurocrats for imposing austerity on them and demanding that they run their economies for the benefit of foreign creditors instead of the domestic population.  But that is merely anger at what the EU does, rather than what it is.  Their goal is to persuade the EU to give equal weight to creditors and debtors, instead of reflexively siding with creditors.  The European right, by contrast, is angry at the EU for what it is -- an outsider undermining their national sovereignty.

Well, now, liberal that I am, I would love to see more harmonious cooperation between European countries and the EU become more of what it promised -- a forum for working together between equals, rather than a way for creditors to impose their will on debtors.  But as a realist, I am prepared to acknowledge that that just ain't in the cards.  All accounts I read of Syriza preparing to renegotiate its debt seem to agree that the creditor countries -- not just Germany, but the entire European "core" -- is saying no breaks for debtors.

This collection of comments on Syriza is interesting, and shows just how far apart creditors and debtors are in their thinking.  Paul Krugman gives the Greek perspective -- its debt is unpayable, and servicing it is draining the Greek economy of much-needed resources.  Cut the Greeks a break, and the multiplier effect will take effect and kickstart the Greek economy.  But the trouble is that that is exactly what the creditor nations -- not just Germany, but all the creditors -- most fear.  Because everyone agrees that the Greek economy is in the worst shape of any economy in Europe.  Cut Europe's biggest and most irresponsible debtor a break and see it prosper, and all the rest will be wanting a break, too.  Hurting debtors, in other words, isn't an accidental side effect of the creditors' policies; it is the whole point.  A face-saving deal might be acceptable, in other words, so long as the Greek economy and people don't derive any substantial benefit from it.  This is where the really nasty threats come out.  Think you can afford to default because you are paying back more than you are borrowing?   We'll torpedo your banks.  Thinking of leaving the euro?  We'll crush your economy. To Krugman this is intolerable, especially in an organization dedicated to democratic ideals and international cooperation.

Daniel Davies, giving the Eurocrat perspective is less squeamish.  Of course everyone knows the Greek debt is unpayable, he says.  The point by now is not economic; it's political.  To agree to a reduction is to give up control over Greek policy:
Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills. There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s. 
Well, there's a word for that.  It's called imperialism.  When a country's creditors say, "Well, sure, we know your debt is dragging your economy down and can never be paid, and we can afford to give you a break, but to let you recover would mean giving up our control over you," the only appropriate response for any leader, left, right or center, is one of chest-thumping, swaggering reassertion of national sovereignty.  I suppose that is why the Latin American left knows how to do nationalism, and why the Mideastern left was good at nationalism too, back when there was a Mideastern left. Because nationalism is no longer the preserve of the right when it means standing up to imperialists. But the European left hasn't had to stand up to imperialists much, so it doesn't do nationalism.

Now, granted, Davies offers a carrot as well as a stick.  He promises:
One day, fiscal union will happen in the EU and Greece’s debts will disappear into a common pool. Everyone knows this, but it’s not politically acceptable to say so at present. Given that, it makes little sense to risk the relationship for a short term gain.
To which the host caustically comments:
It seems to me that Daniel Davies is saying that the fact that even though the Euro Troika has done the wrong thing over the past seven years Syriza should still avoid trying to play hardball because the Troika are going to do the right thing in the future, any day now.
Yeah, basically.  What's not politically acceptable to say is usually not politically acceptable to do.  Fiscal union won't happen so long as the creditor countries see it as giving the debtor countries an unfair break.  Nationalism once again wins out over international harmony and cooperation.  All Syriza's right wing allies in the European "core" who applaud it for defying the Eurocrats and their austerity demands might start singing a different tune altogether once they find out they are the ones being asked to cut Southern Europe a break.

So what happens if Syriza defaults?  No one knows, but the Europeans just might torpedo Greece's bank.  And what if the Europeans torpedo Greece's banks?  Well, the general consensus is that the Greek government will have no choice but to freeze bank accounts until it can introduce its own currency.  No one knows how long that will take.  But what if Greece stages the Grexit?  Well, everyone agrees that the short-run effects will be traumatic.  The drachma will plummet.  Import costs will soar.  Everyone's cost of living will skyrocket.  Private debts to foreign countries will also skyrocket.  But the deflationary pressure on the Greek economy will be relieved.  Greek exports will become much cheaper.  Domestic industry will become more competitive with imports.  We know that other countries, like Russia, Argentina, and Iceland defaulted and devalued.  After a highly traumatic beginning, the country bounced back remarkably quickly.

Now, it has been argued that what worked for Russia and Argentina won't work for Greece.  Russia and Argentina are countries of great natural wealth -- in oil for Russia; in wheat, soy beans, beef and wine for Argentina -- while Greece is not much more than a pile of rocks.  I will let others debate the issue.  But one thing is clear.  Even assuming the best, a rapid recovery, the first year or two will be extremely rough sailing.  Will the Greek public, after years of fruitless sacrifice, be willing to accept yet a deeper trauma to their economy?  Once again, I don't know, but there are two things that make a country more likely to be willing to endure such hardship.  First, if they believe it is temporary and will lead to improvement soon.  And second, if they believe it is not just an inevitable misfortune, but is being imposed by Eurocrats and foreign bankers in a deliberate attempt to break us.  In other words, if their leadership can convince the people that these are necessary patriotic sacrifices to regain our sovereignty, people can be convinced to endure a great deal. But it will call for some chest-thumping nationalism.  And the European right is a whole lot better at that than the European left.

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