The global financial crisis that erupted in the United States in 2007-08 has already gone down in history as the most destructive capitalist crisis since the Great Depression – and it is far from over. Indeed, while the US economy has bounced back since the 2009 recession that ensued, albeit with less than desirable GDP growth trends and thanks mainly to three rounds of quantitative easing by the Fed, serious problems remain: The unemployment rate hovers at socially unacceptable levels, income and wages remain stagnant for the large majority of the working population, and poverty shows no signs of abating. Furthermore, the “masters of the universe” have returned to their old ways of doing things, as serious efforts to reform the financial system have been effectively blocked by Wall Street lobbyists and the financial industry and the ostentatious behavior of deficit hawks in Washington, whose views and positions reflect those of the most wealthy in American society. They have all but ensured that the formulation of a sustainable economic strategy for addressing the above problems and the potential threats to America’s economic future stemming from various exogenous risks and challenges remains as unattainable as time travel.
On the other side of the Atlantic, where the economic philosophy of “keep-cutting-until-it grows” reigns supreme, the situation is far grimmer: A major part of the euro zone (the so-called periphery) is experiencing an economic and social disaster on a scale hardly imaginable for contemporary western European societies until a few years ago. Several peripheral euro zone member states have seen their economic activity shrink dramatically; businesses are shutting down at record levels; unemployment is reaching catastrophic proportions; poverty is becoming widespread; health care systems are barely functioning; diseases long extinguished are resurfacing with a tenacity uncharacteristic for modern times; suicides are taking place at alarming rates in societies that were historically immune to such phenomena, and migration has become the only hope for a sizeable segment of the young and educated.
The criminal effects of the austerity blitz strategy that the European Union (EU) conceived of on Germany’s insistence as the answer to the global financial crisis when it hit Europe’s shores with the triggering of the Greek sovereign debt crisis have not been confined to the euro zone member states which had to be “rescued” via bailout loans – e.g., Greece, Ireland, Portugal, Spain, and now Cyprus. Teetering in the last few years on the brink of being shut out from international credit markets, Italy, the euro zone’s third largest economy, has been hard hit by a deep recession caused by deep budget cuts and tax increases. Italy continues to experience severe difficulties in lowering its borrowing cost to long-term sustainable levels. France, the euro zone’s second largest economy, has also entered into a clear phase of economic malaise, with its official unemployment rate standing currently above 11%. The only hope for a return to growth rests entirely with Berlin’s willingness to back down from its insistence on orthodox austerity.
In fact, there are now undeniable signs that core nations like Germany are also beginning to feel the adverse effects of their own medicine. With its biggest export area in deep recession, the German economy has been weakening since 2012, when it expanded marginally by 0.7%, and growth forecasts for 2013 are even gloomier. German unemployment has also been rising the last few months, and tax revenues are expected to be significantly less in 2013 and 2014 than they were in 2012. The economies of Austria and Holland are also slowing down considerably, thus leaving no doubt that the entire euro zone area and virtually all of Europe is under the grip of a menacing recession. Given the existing EU institutional framework and the obsession of Germany with austerity, the recession will only get worse even if economic morale does not, at times, march in tune with the actual state of the euro zone economy.
The capacity of the political elite to manipulate public opinion should never be underestimated. A glaring example is the case of Greece, where the government’s propaganda in portraying an economic catastrophe and the conversion of a sovereign nation into a banana republic as a “success story” seems to be paying off dividends, as the latest polls show the gap between the conservative party and the Coalition of the Radical Left, or Syriza, widening. French President Francois Hollande, who managed to become the most unpopular French president after only a few months in power, seemed to be following the same route when he declared on a recent trip to Japan that the euro zone crisis is over.
Nonetheless, in spite of constant incantations by European leaders to convince markets and citizens alike that the crisis in the euro zone is over, the financial crisis not only has not released its ugly grip on the European Monetary Union but has evolved into a profound economic and social crisis that is undermining the European integration project on the whole and causing rising hostility between North and South. The blame for this dramatic development lies squarely with the leading actors in the EU who have opted from the start to seek to exorcise the demons of financial instability and turmoil not through the use of expansionary fiscal policy tools, but by reliance on tough austerity measures and mindless fiscal consolidation. They do this without any consideration at all for the damage these policies inflict on human lives and the social fabric of societies in general. As one major study pointedly reveals, austerity indeed kills.(1) Yet, the only concern of EU policymakers, with Germany acting as an imperial hegemon, has been the stabilization of the euro as a currency, protecting banking interests and punishing nations like Greece for their alleged failure to maintain fiscal discipline.
Lacking a federal structure and a democratic form of governance, the Euroland has evolved into a peculiar type of an empire whereby the core seeks to maintain its privileged position by pursuing policies detrimental to the periphery. Hence the great imbalances in the euro zone and the widening divide between North and South; hence also the conversion of the euro into a currency with a double function: providing a competitive advantage for the advanced nations of the North and serving as an albatross around the neck of the less developed nations of the South.
In the course of the crisis, the core has also attempted to convert the peripherals into colonies as a means of controlling the spread of the crisis throughout the euro zone. The rescue schemes that were activated for the southern Mediterranean region (Greece, Portugal, Spain and Cyprus) and Ireland were conceived along this line of reasoning. However, the plan has failed miserably: The periphery is on the edge of the abyss and at this stage periphery country populations openly question the usefulness of the European project while frequently engaging in large scale anti-austerity protests and demonstrations against both their own political lackeys and the imperial center. Thus, the economic crisis in the indebted nations of the southern Mediterranean region has become a severe political crisis also as the “bailout” plans have caused a deep mistrust in the intentions of the EU. To be sure, the policies pursued by Brussels and Berlin are depriving the indebted euro zone member states of their sovereign status and are making a mockery of democratic processes and institutions.
As things stand, the euro zone is doomed to collapse. It lacks a banking or fiscal union and its hegemon is playing the role of a debt collector – all while national economies are collapsing and human lives are being destroyed. The crisis is now in its fourth year and human misery is expanding and deepening. In Greece, the official rate of unemployment stands at 27% (it has tripled since the introduction of the austerity measures) while unemployment among the youth is over 62% and over 30% of the citizens live near or below the poverty line. In a nation of less than 11 million people, more than half a million children live in poverty (that’s 1 out of 3), with nearly 60% of them lacking “basic daily nutritional needs,” according to a recent study by UNICEF. In Spain, the unemployment rate is about the same as in Greece and poverty is increasing rapidly: Close to 30% of Spaniards now live in relative poverty and 6.4% of the population lives in extreme poverty. In Portugal, the unemployment rate stands currently at 18% and the poverty rate is comparable to that of Greece.
Will the poor and the unemployed in the world’s biggest monetary union fiasco stand by idly watching their days get shortened and the grave awaiting them? In southern Europe (Greece, Spain, Portugal and Italy) the economic crisis had led to a huge spike in suicides, and this can be seen, perhaps, as yet another victory on the part of neoliberalism over radical change. But the mass protests of the last couple of months in all of the peripheral countries, coupled with the wild spread of Euroskepticism across the continent, may signify far deeper troubles ahead for the Euroland. Indeed, in the end, it could very well be politics, rather than economics, that drives the nail into the coffin of the euro.
1. See David Stuckler and Sanjay Basu, The Body Economic: Why Austerity Kills (London: Allen Lane, 2013).