EDITORIAL by Peter WestmoreNews Weekly
Greek elections new threat to eurozone
, January 31, 2015
Ever since the global financial crisis began with the collapse of one of the world’s major investment banks, Lehman Brothers, in 2007, the world has come closer to a global financial meltdown than at any time since the Great Depression of the 1930s.
In 2007, following a decade or more of reckless borrowing and lending in the world’s financial system, the world’s five largest investment banks jointly reported over $4.1 trillion in debt which they could not repay.
Lehman Brothers went bankrupt and was liquidated; Bear Stearns and Merrill Lynch were sold at fire-sale prices; and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation.
The financial system survived only as a result of co-ordinated global government support, cutting central bank interest rates almost to zero and providing multi-billion dollar taxpayer-funded bailouts.
In Western Europe, the global financial crisis adversely affected many national economies, particularly those known as the PIIGS (Portugal, Italy, Ireland, Greece and Spain), where government borrowings from European banks and the European Central Bank (ECB) had risen to stratospheric levels, despite the rules of the European Union which were intended to prevent this from happening.
Following the shock to the global financial system, the European Union set about putting its own house in order by forcing the most stringent austerity measures on the delinquent countries, including the elimination of government deficits, substantial cuts in wages, salaries and pensions, and large-scale cuts to government employment.
In exchange for this, debtor nations were given access to low-interest loans from the ECB, to prevent a total economic collapse.
While Ireland has emerged from the crisis — partly because its difficulties arose from a property boom and bust, while the rest of its economy was intact — the other four countries continue to face economic stagnation.
The worst hit country is Greece, which joined the European Union in 1981, and adopted the euro as its currency in 2001.
Today, Greece has an unemployment rate of about 26 per cent, and experienced negative economic growth since 2009. Its gross domestic product (GDP) has shrunk to 70 per cent of what it was in 2008.
Greece’s youth unemployment rate — which was about 20 per cent before the crisis began — soared to about 60 per cent in 2012, and is still above 50 per cent.
The past seven years have been politically difficult in Greece, with governments of both the left and right implementing the European Union’s austerity program.
However, there has always been a far left constituency which opposed the EU’s austerity program, and called for successive governments to refuse to comply with it, and refuse to meet the debt repayments imposed by the ECB.
Up to the present time, this constituency has been a minority. But, following years of economic decline, a political party has emerged in Greece which threatens to shake the present political order to its foundations.
Syriza, a party whose origins go back to the Greek Communist Party, but now describes itself as the “Coalition of the Radical Left”, is poised to become the largest political party after elections are held on January 25.
Clearly, the EU itself is at least equally responsible for the Greek debt crisis and the subsequent political backlash.
For years, the EU allowed Greece to go further into debt when it was recklessly irresponsible to do so. Its insistence now that Greece repays the European banks for loans which should never have been made, imposing years of poverty and suffering on the Greek people, with the threat of national bankruptcy if Greece defaults, is immoral.
If Syriza forms the next government of Greece, it has publicly declared that it will abrogate its debts, with uncertain consequences for the European banks whose solvency depends on the repayment of the Greek loans.
With widespread opposition in Europe to the EU’s austerity program, the outcome of the Greek financial crisis will be closely watched throughout the continent, and indeed throughout the world.
It will certainly encourage the Euro-sceptics in other West European countries who have long criticised the excessive centralism and surrender of national sovereignty imposed by the European Parliament and the EU’s bureaucracy.
In hindsight, it is clear that Greece, which is a small country with a significantly lower standard of living than the rest of Western Europe, should not have been allowed into the eurozone. Once admitted, it was forced to run its economy with the high-cost structure of Western Europe, which Greece could not afford.
The best solution would be for Greece to reintroduce a national currency, but without the debts imposed by the EU. The EU, however, has said it will not agree to any solution which writes down Greece’s debts, nor will it accept a withdrawal from the EU. Stalemate!
The next few months may well determine the future of the great European experiment, which has delivered peace in Europe for the past 70 years.
Peter Westmore is national president of the National Civic Council.