We all should say no to austerity, not just the Greeks

In Dublin on Wednesday, January 28th, Bank of England governor Mark Carney’s criticism of euro zone austerity was welcome if sadly belated. And it was notably silent on his own political masters’ remarkably similar austerity policy in Britain.

Ireland, in common with Britain and the European Union establishment, would do well to take heed of Greece’s sizzling rejection of austerity.

The savage cuts programme imposed by Brussels and lauded by British prime minister David Cameron and other EU leaders did not work in its own narrow terms: Greek national debt went up, not down, which was the stated purpose of the whole exercise.

Nobody in the political elites across Europe seemed to recall the consequences of the 1919 Treaty of Versailles which imposed crippling reparation conditions on Germany – “austerity” in the modern vernacular. That proved disastrous, opening the way to Hitler.

As German chancellor, Angela Merkel should surely have known better than to attempt an action-replay of a kind on a fellow EU member. An almost wanton destruction of Greek society has been the result. Former middle-class professionals have stood alongside redundant cleaners relying on soup kitchens and food charity. Which is why the Greeks revolted – and were right to do so.

The response should not be to insist the popular new Syriza government dump their anti-austerity policy. Instead, the EU should restructure Greek debt and renegotiate its loans. The crippling loan conditions imposed by EU leaders have been the nation-state equivalent of loan sharks, where poor people end up with debts hugely bigger than they started with, now standing at an unsustainable £240 billion in Greece, massively greater than its GDP.

It’s what the new Greek finance minister Yanis Varoufakis has described as: “Biblical economics, an ‘eye for an eye’, leave everybody blind”.

Some experts have suggested that Greece’s remaining external debts could be restructured as very long-term loans at a fixed and low euro-interest rate, perhaps 0.5 per cent for the next five years, rising to 1 per cent beyond that.

Although, of course, that wouldn’t solve Greece’s deep economic problems and unbalanced public finances, it would open a window to solving those problems instead of driving its people into penury.

Across Europe – and including both the UK and Ireland – centre-left, centre-right and right-wing parties have been heading down the same austerity road. Between them the argument has only been about the pace of austerity, the Left insisting only it should be slower, instead of (as Keynes showed in the 1930s) getting the economy back on the growth path as a much surer, and much less damaging, way of sorting out the public finances.

For, although the neoliberal ideology which took root under Margaret Thatcher and Ronald Reagan from 1979-80 produced the global banking crisis in 2008, that same ideology has clung on nevertheless. Cameron, with breath-taking chutzpah, even insisted that the entire global banking crash had less to do with big finance than with big government. The cause was too much public spending – not too little public regulation.

It is as if, by recruiting hundreds of thousands more nurses, doctors, teachers, police and carers until 2008, the last Labour government somehow caused the sub-prime mortgage market in the US to implode, triggering the worldwide banking crash. And that, even after Cameron in September 2007 publicly backed Labour’s spending plans and pledged to maintain them until beyond the 2010 election.

After the banking crisis he switched to denounce this very spending as the root of all economic evil – in what I call the Big Deceit of British politics. Along with other advocates of neoliberalism he has denounced Nobel Prize-winning economists who argue compellingly that growth, not savage cuts is the only way to build a strong, sustainable economy.

In Britain the recent, government-trumpeted growth has been consumer-, housing- and debt-driven, while the trade balance continues to implode and industry weakens. What is needed is faster, fairer, greener growth because only an expanding economy can provide the resources needed both to tackle Britain’s huge structural problems and get the deficit down. Actually under Britain’s recent austerity, borrowing is wildly over target.

Contrary to the stifling grip of neoliberal orthodoxy on the “Westminster bubble”, faster, fairer, greener growth is eminently feasible – £30 billion per year over two years of extra public investment in housing, in the social infrastructure, in training and skills, and in the low-carbon economy would mean the government borrowing more today in order to borrow less tomorrow, by raising Britain’s economic growth rate.

Frustrated at the absence of a creed for the modern left, I revisited Anthony Crosland's classic text, The Future of Socialism, first published in 1956.

Crosland’s approach – essentially one in which the state sought to spread the benefits of economic growth within and without challenging the capitalist framework – underpinned Labour’s approach and that of social democratic governments across Europe until the global economic crisis of 2008.

But the kind of capitalism we face today is a more internationally and financially integrated, more unstable and more unfair system than Crosland’s generation ever anticipated: productive but prone to paralysis, dynamic but discriminatory, one whose self-destructive tendencies require far more radical responses than the neoliberalism of the post banking crisis era could ever provide.

Over a 30-year period, banking got out of control and become a law unto itself. Takeovers and mergers led to banks so big that governments couldn’t allow them to fail. Bankers bent rules to lend ever more riskily without anything like enough capital cover, until it all unravelled to catastrophic effect. Facing this new, integrated, almost impenetrably complex structure of global finance, in truth governments were too small and too passive, not too big and too active.

My new book, Back to The Future of Socialism, tries to provide a practical political alternative. By developing a fresh perspective on the purpose and role of government in what conventional wisdom falsely determines must be an era of austerity, I cite solid economic evidence to get the economy growing again whilst putting the public finances back in order.

The Greek election should encourage everyone to look afresh at this case, for otherwise the very future of Europe may be at stake.

[ Back to The Future of Socialism ]