FacebookTwitterGoogle+RedditEmail

The US and the Euro Crisis

by MARK WEISBROT

The eurozone recession is now the longest on record for the single currency area, according to official statistics released last week, as the economy shrank again in the first quarter of this year. A comparison with the U.S. economy may shed some light on how such a profound economic failure can occur in high-income, highly-educated countries in the 21st century.

While the U.S. economy is still weak and vulnerable, the record 12.1 percent unemployment in the eurozone is still a lot worse than our 7.5 percent here. The most victimized countries like Spain and Greece have unemployment of about 27 percent.

The contrast between the U.S. and Europe is all the more striking because Europe has much stronger labor unions, social democratic parties, and a more developed welfare state. Yet the eurozone has implemented policies far to the right of the U.S. government, causing needless suffering for millions more people. How does this happen? The answers have little to do with a “debt crisis” but everything to do with macroeconomic policy, ideology, and – perhaps most importantly – democracy. As such these questions are relevant not only to the populations of both of these economic superpowers, but to most of the world.

Let’s start with democracy: most of the eurozone countries have little to no control over the most important policies that the government can use to increase employment and income, includingmonetary, exchange rate, and increasingly, fiscal policy. They have ceded this control to the eurozone authorities – most importantly the European Central Bank (ECB). The decision makers for the more victimized countries – including Spain, Greece, Ireland, Portugal, and Italy – are now “the Troika”: the ECB, European Commission, and the International Monetary Fund (IMF). They have their own agenda, and their priority is not restoring employment or even bringing about a speedy economic recovery.

Before returning to that agenda, let’s contrast the economic decision makers of the eurozone with those of the United States. Our central bank, the Federal Reserve, is officially independent of the government. Like the ECB, it has often acted against the interests of the majority, favoring powerful financial interests – most recently in its enabling of the $8 trillion housing bubble that caused the Great Recession. But the Fed is still accountable in some ways. Fed Chair Ben Bernanke has to report regularly to Congress, and the Fed has some fear that Congress might reduce its autonomy if it were to ignore the public interest too flagrantly. (They were not pleased about legislation approved by the U.S. House last year that required, for the first time, an audit of the Fed’s books; it remains blocked in the Senate.)

The ECB, by contrast, has no such constraints. In fact, for most of the last three years, the Troika has actually used the recurrent financial crises in the eurozone to pursue a political agenda: rolling back, as much as possible in a European context, the welfare state. The ECB could have avoided most and possibly all of these crises by simply stabilizing the interest rates on Spanish and Italian government bonds. But as was evident in numerous press reports, the ECB and its allies feared that to end the threat of a full-blown financial crisis would “remove the pressure” on governments to make the reforms that they wanted: cutting pensions and unemployment insurance, weakening unions’ collective bargaining rights (as in Spain), and shrinking government generally.

Finally in the fall of last year, ECB President Mario Draghi made some statements indicating that the ECB would stabilize Spanish and Italian bonds. He got tired of near-death experiences, apparently; and after more than a dozen European governments (including Sarkozy’s in France) had fallen, the ECB and its allies were running up against some political limits. This change in policy, which put an end to the most severe, recurring financial crises in Europe, can be partly attributed to the very slow impact of a severely limited form of democratic input. That included of course massive street protests and electoral events such as the surge of the Greek left party Syriza.

But this “democracy” is far too restricted and slow moving to save the millions of unemployed whose lives are being wasted; and most importantly, it only ended the acute crises and not the continuing recession caused by the austerity measures enforced by the Troika. This has an important lesson for any country: don’t give away your economic sovereignty, on the most important macroeconomic policies that most of your nation’s livelihood depends upon – unless it is transferred to a set of institutions that you can really trust. Which of course is the opposite of what was created with the eurozone, with its built-in bias towards austerity in recession, and a central bank that was religiously committed to not caring about employment.

Again, the contrast with the U.S. is worth noting. Even if Mitt Romney had been elected, he would not have dared to implement the kind of austerity that would push the U.S. back into recession. He would want to get re-elected. That is not to say that eurozone officials have a monopoly on macroeconomic stupidity: the sequester in the U.S. is currently slowing the U.S. economy and causing unnecessary harm. But it was not as easy to get this result here; it is not as severe; and it will be easier to reverse than in Europe.

What then is the hope for Europe? Another political lesson, which most union leaders know, is that it’s difficult to win any concessions without bargaining power. So far, almost none of the political leaders in the most victimized countries, including Spain and Greece, are willing to simply refuse the Troika’s conditions, for fear that it would lead to their exit from the euro. So the Troika doesn’t see much reason to let up on the austerity. In that sense the most promising recent development has been the meteoric rise of the populist Beppe Grillo and his Five Star Movement in Italy. He has been willing to talk about a referendum on leaving the euro, and his movement got the largest number of parliamentary seats of any single political party in the February Italian elections.

The case needs to be made, and explained to the public – as economist Paul Krugman recently did for Cyprus – that years of mass unemployment are too high a price to pay for keeping the euro. Politicians do not need to propose leaving the euro, as that remains taboo. But a refusal to accept recessionary conditions would shift the burden to the European authorities as to whether they want to kick any country out of the currency union. Most likely they would not. But without a willingness to simply refuse the Troika’s recessionary conditions, it’s going to be a long, slow slog to reverse the continued infliction of needless suffering in what used to be one of the most democratic regions of the world.

Mark Weisbrot is an economist and co-director of the Center for Economic and Policy Research. He is co-author, with Dean Baker, of Social Security: the Phony Crisis.

This essay originally appeared in Al Jazeera.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of  Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).

More articles by:
Weekend Edition
July 29, 2016
Friday - Sunday
Michael Hudson
Obama Said Hillary will Continue His Legacy and Indeed She Will!
Jeffrey St. Clair
She Stoops to Conquer: Notes From the Democratic Convention
Rob Urie
Long Live the Queen of Chaos
Ismael Hossein-Zadeh
Evolution of Capitalism, Escalation of Imperialism
Margot Kidder
My Fellow Americans: We Are Fools
Phillip Kim et al.
Open Letter to Bernie Sanders from Former Campaign Staffers
Ralph Nader
Hillary’s Convention Con
Lewis Evans
Executing Children Won’t Save the Tiger or the Rhino
Vijay Prashad
The Iraq War: a Story of Deceit
Chris Odinet
It Wasn’t Just the Baton Rouge Police Who Killed Alton Sterling
Brian Cloughley
Could Trump be Good for Peace?
Patrick Timmons
Racism, Freedom of Expression and the Prohibition of Guns at Universities in Texas
Gary Leupp
The Coming Crisis in U.S.-Turkey Relations
Pepe Escobar
Is War Inevitable in the South China Sea?
Norman Pollack
Clinton Incorruptible: An Ideological Contrivance
Robert Fantina
The Time for Third Parties is Now!
Andre Vltchek
Like Trump, Hitler Also Liked His “Small People”
Serge Halimi
Provoking Russia
David Rovics
The Republicans and Democrats Have Now Switched Places
Andrew Stewart
Countering The Nader Baiter Mythology
Rev. William Alberts
“Law and Order:” Code words for White Lives Matter Most
Ron Jacobs
Something Besides Politics for Summer’s End
David Swanson
It’s Not the Economy, Stupid
Erwan Castel
A Faith that Lifts Barricades: The Ukraine Government Bows and the Ultra-Nationalists are Furious
Steve Horn
Did Industry Ties Lead Democratic Party Platform Committee to Nix Fracking Ban?
Robert Fisk
How to Understand the Beheading of a French Priest
Colin Todhunter
Sugar-Coated Lies: How The Food Lobby Destroys Health In The EU
Franklin Lamb
“Don’t Cry For Us Syria … The Truth is We Shall Never Leave You!”
Caoimhghin Ó Croidheáin
The Artistic Representation of War and Peace, Politics and the Global Crisis
Frederick B. Hudson
Well Fed, Bill?
Harvey Wasserman
NY Times Pushes Nukes While Claiming Renewables Fail to Fight Climate Change
Elliot Sperber
Pseudo-Democracy, Reparations, and Actual Democracy
Uri Avnery
The Orange Man: Trump and the Middle East
Marjorie Cohn
The Content of Trump’s Character
Missy Comley Beattie
Pick Your Poison
Kathleen Wallace
Feel the About Turn
Joseph Grosso
Serving The Grid: Urban Planning in New York
John Repp
Real Cooperation with Nations Is the Best Survival Tactic
Binoy Kampmark
The Scourge of Youth Detention: The Northern Territory, Torture, and Australia’s Detention Disease
Kim Nicolini
Rain the Color Blue with a Little Red In It
Cesar Chelala
Gang Violence Rages Across Central America
Tom H. Hastings
Africa/America
Robert Koehler
Slavery, War and Presidential Politics
Charles R. Larson
Review: B. George’s “The Death of Rex Ndongo”
July 28, 2016
Paul Street
Politician Speak at the DNC
FacebookTwitterGoogle+RedditEmail