Adam Tooze’s magnificently panoramic Crashed: How a Decade of Financial Crises Changed the World (2018) is required reading for every individual wishing to be well-informed about our global financial system, whose fitting mantra is “put Wall Street first, worry about Main Street later”.
Crashed merits a review devoted to it in its entirety, which I hope to undertake in the near future.
For now, Crashed does two things for me amongst several others:
(1) it provides (in addition to an aetiology of the 2008 financial crash and its repercussions) a superb overview of the Reagan-Thatcher neoliberal dispensation which was a cornerstone in this aetiology; and
(2) it confirms the intuitions and assessments many of us had at that time about the political agendas underlying the austerity-schemes inflicted by the “troika” (IMF, European Commission, European Central Bank) on the Greek people after their country’s 2009-2010 economic collapse; and by the Conservative party on the British people since 2010.
In essence, Crashed shows conclusively that the Greek and British peoples were hapless victims of a “bait and switch” (the term used by the Brown University economist Mark Blyth in his 2013 Austerity: The History of a Dangerous Idea) concocted by their political overlords.
Of course the official but nonetheless cartoonish mythology is that Greece and the UK are “democracies” thereby bound to hold elections aimed at reflecting “the will of the people”.
This mythology should not therefore in theory cause their citizens to be left high and dry by elected politicians, who by virtue of electoral success, seemingly possess at least a patina of “democratic” legitimacy, unlike (say) the ghastly Sultan of Brunei or the Saudi Crown Prince.
So: what transpired at that time in Greece were elections which enabled the supposedly “left” and anti-austerity Syriza party to sell the Greek people down the river in a capitulation to the ‘troika” (which none of the discredited and rejected parties to Syriza’s right could have accomplished since they lacked the electoral mandate of the victorious Syriza).
In the UK, the Conservatives, lacking a majority after the 2010 election, formed a coalition with the small but power-hungry Lib Dems, to produce a government of parties that had emitted not a squeak concerning austerity in their respective election platforms.
How and why did this “bait and switch” work in Greece and the UK?
With respect to Greece, the tone was set when Syriza was told by the bullying troika: “Elections cannot be allowed to change economic policy”.
Those Brits wanting a rationale for Brexit will find it in the above eight words, which show that the votes cast by Stavros and Konstantina Politis of Athens or Rhodes in their national elections really carry no weight with the EU, at least where the Greek economy is concerned!
Brexiters assume, rightly or wrongly, that the same fate could await Jill and Joe Normal of Sheffield or Swansea in a future election if Ukania remains in the EU.
The troika believed it had to make an “example” of Greece, and in doing this used a “bait and switch” to morph a French and German banking crisis into a Greek sovereign debt crisis, the latter said to be caused by the Greek government’s irresponsible borrowing.
Greece was of course beset by a massive debt overhang, rampant tax evasion, and a large black economy, but the austerity imposed by the troika did nothing to address these issues, especially that of Greece’s unsustainable debt.
The real priority of the troika was to protect the Eurozone banks with their massive exposure to Greek debt.
Greeks got austerity when they of course needed debt relief to give the economy time to recover in order for it to begin to reduce its debt levels.
As a result of austerity, Greece was plunged into a deep recession. The IMF thought the Greek economy would contract by just 5.5% as a result of the troika’s policies, when in fact it contracted by 17%.
Greece’s national income fell by 28%, the Greek banking system lost 30% of its deposits, and the economy was plunged into a recession with exceptionally high unemployment. It is estimated that 1 in 6 Greeks went hungry.
Yanis Varoufakis, the Greek finance minister who was fired by his own government because he stood-up the troika, by wanting significant debt restructuring to be a part of the troika’s package for Greece, called this a “fiscal water-boarding”.
The IMF’s Independent Evaluation Office (IEO) subsequently made an assessment of the troika’s handling of the Greek crisis (and also those of Ireland, and Portugal). Its conclusion, though expressed in typically delicate bureaucratic prose, was damning:
“The IMF’s handling of the euro area crisis raised issues of accountability and transparency, which helped create the perception that the IMF treated Europe differently. Conducting this evaluation proved challenging. Some documents on sensitive issues were prepared outside the regular, established channels; the IEO faced a lack of clarity in its terms of reference on what it could or could not evaluate; and there was no clear protocol on the modality of interactions between the IEO and IMF staff. The IMF did not complete internal reviews involving euro area programs on time, as mandated, which led to missed opportunities to draw timely lessons”.
The eurocrats had clearly used the IMF (and the Greek people) to rescue their own currency union and banking system. The effects of their ruinous boot-on-the-neck policies are of course still being felt by the Greek people.
The UK’s “bait and switch” took a different form. The Conservatives and their Lib Dem toadies imposed austerity to morph the financial crisis associated with the 2010 Great Recession into a crisis of the welfare state.
The UK was said by the Tories to be “living beyond its means”, even though the UK’s 2019 public sector spending is between 38% and 39% of GDP, a little higher than the U.S. at about 36%, but lower than Germany’s 42%, France’s 56% and Italy’s 48%.
A World Bank study has shown that the tipping point for a country’s debt to become unsustainable occurs when its debt to GDP ratio is greater than 77%– if this figure is exceeded for an extended period of time, economic growth is slowed, so that every percentage point of debt above 77% costs the country 1.7% in economic growth.
However, when the Tories came to power in 2010, the UK’s debt to GDP ratio stood at 53%. In 2017, the same ratio for France was 98.5%, Germany 64.1%, Japan 223.8%, the US 103.8%, and the UK 87% (2018). The UK’s debt has increased precisely as a result of the economic slow-down stemming from austerity! So, it is a fallacy to claim, as the Tories did, that the UK was “living beyond its means”.
Austerity’s outcome has been the weakest UK economic recovery in over a hundred years, causing millions of people to suffer.
Government spending (in real terms) was trimmed, as spending was cut for hospitals, schools, the police, the fire service, road maintenance (pot holes!), libraries, courts, prisons and social housing. Local government revenues took a big hit.
Since 2010, more than £30 bn/$40 bn has been cut from welfare payments, housing subsidies and social services.
It is not just the jobless who have been suffering– the Institute for Fiscal Studies has said that approximately 2/3rds of poor children have at least one parent who works, once again showing that it is a lie to assert that those supported by the welfare state are necessarily shirkers and malingerers.
Between 2012 and 2019 the number of children obtaining food from the food banks of The Trussell Trust more than tripled. Homelessness has gone up by 169% since 2010, and a study published in the British Medical Journal in November 2017 showed mortality rates have been rising by 0.87% annually after 2010. In 2018 the Office for National Statistics published data showing the slowdown in UK general life expectancy increase was one of the highest in a group of 20 of the world’s leading economies.
Cuts of more than 30% to the police have been said to contribute to the current wave of knife-crime.
The Institute for Fiscal Studies has said the government would have to spend at least £12.4bn/$16bn above current budgetary projections to bring a genuine end to austerity. As it is, there are still several billion pounds of welfare budget cuts in the pipeline.
Austerity will only end when the Labour party comes to power.
Recently, Jeremy Hunt, the Foreign Secretary (and prior to that the long-time Health Secretary), praised the “genius”of David Cameron and George Osborne (the former finance minister) for imposing austerity without causing riots on the streets.
Hunt, regarded as a possible successor to Theresa May, was clearly implying that that the “genius” of his erstwhile colleagues lay in conning the British public over the Tory austerity scam, by getting Brits to believe that a devastating political choice was somehow an economic necessity.