The strategies adopted to bail out Wall Street, the City of London, and banks in Frankfurt, Paris and other capitals have resulted in very high levels of public debt for a number of countries. The costs of the planned austerity measures to pay for the bailouts in Greece, Ireland, the UK and France for example, will fall disproportionately on the backs of the poor. In the UK, the Conservative-Liberal coalition government has announced the elimination of about 500,000 public sector jobs involving deep cuts to education, welfare and policing budgets to pay for the huge bailouts of City of London firms. These job losses will also affect women the most (about 350,000 of the jobs scheduled to be terminated).
This explains why political struggles over the new austerity are intensifying, e.g. in France as of October 2010. The struggles point to questions that have been largely missing from the way that conservative and social democratic governments have defined their responses to issues of public finance. These questions include: (a) what could have been the alternative uses of these gigantic sums of public money? (b) Who will pay for these debts?
The answer given to question (b) by the International Monetary Fund, and most G20 governments is, “the people.” The IMF has said that it will take 10 to 20 years of austerity measures, involving cuts in public sector wages, jobs and public services, raising the retirement age, and increased privatization of public assets to pay back not only the large government debts incurred in bailing out the banks but also to pay for “future” bailouts. As the Director-General of the International Labour Organisation noted in 2009, the bailout strategies involve “billions for the banks and pennies for the people”. Now the people are being made to pay for the bailouts with the new austerity measures.
The new austerity is something that has feature of the economies of the global South for much longer, at least 30 years — in many parts of the world the austerity is not all that “new”. More to the point, the debt crisis is therefore becoming more “global” in the sense that it is experienced in both North and South, and it operates not only at the level of the sovereign debt of countries such as Greece but also at the level of firms and workers.
In some parts of the global South – for example in Latin America – austerity has not prevented the emergence of progressive alternatives – what has come to be called “21st century Socialism”. However – up until recently – in much of the global North, in the absence of significant political pressures, governments have simply responded to the crisis in favour of the interests of financial capitalism – or what I call “financial orthodoxy”.
For example, in its response to the Greek debt crisis in May 2010 the European Union formed a kind of European version of the IMF, with new bailout funds of €1 trillion in an attempt to “stabilize the financial markets”. However, hardly debated at the time was how much of the debt of countries such as Greece is owed to private banks in Germany, France and the United States, so the Greek bailout was as much a bailout of these banks as it was for the government of Greece. In response Greece has made draconian cuts in social benefits and pensions that reverse approximately 30 years of workers’ gains. Of course the Greek fiscal crisis has also been caused by poor tax collection (allowing wealthy people and middle-class professionals to evade paying taxes) as well as by previous governments manipulating statistics and using financial innovations with the help of big private banks such as Goldman Sachs in order to camouflage the true condition of government finances.
The key point however is there has been little or no public debate upon the alternative ways in which such resources could be used. A very different kind of (and indeed a much larger) European Monetary Fund should be created, linked to more socially sustainable economic development, and geared to improve education, health and the environment. This would produce a greener and more socially just form of economic growth that would in turn improve the public finances of European governments – provided that tax collection was improved and made more equitable. This fund in turn should be much more democratically governed than the present “independent” European Central Bank, which is responsive mainly to private financial interests.
What we have learned during the present crisis in Europe is that banking is much too important to be left to either to mainstream politicians or the bankers themselves. Indeed there are many gifted, critical and more democratic economists who could be recruited to help build such an institution and run it effectively.
I raised some of these issues in a 20-minute presentation at the public event, Critical Perspectives on Global Governance, University of Helsinki, 7 May 2010; the talk was called The Greek Tragedy and the Global Debt Crisis.
This talk explains aspects of the Greek financial bailout of May 2010. It argues that we should not witness events such as those in Greece in response to austerity measures, as if we are simply the passive audience of a drama, a “Greek tragedy” as it were. Progressive forces should press for socially just responses to the crisis and for more democratically accountable institutions of economic governance.
For the video see http://uni-utopia.net/
As a footnote, viewers of the video will note how at one point a videographer in the audience interrupts me; in case it is not clear from the narrative, what I was referring to was the way that a computer error transposed an automated market “sell” trade of $16 million dollars in shareholdings as $16 billion. This massive sell-off of stocks immediately caused the market value of many shares on the New York Stock Exchange to drop as if the companies were going bankrupt. The example highlights the way that the turnover time of financial capital is accelerated by computerization and 24/7 trading strategies.
Audio podcasts of all the presentations at the Critical Perspectives on Global Governance, were posted on: http://www-hotel1.it.helsinki.fi/~optek/podcast/ (Posted May 2010).