Debunking the Greek (and European) Crisis Narrative [View All]

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Debunking the Greek (and European) Crisis Narrative
by Costas Panayotakis

In a recent debate the candidates for the Republican presidential nomination treated cutting the deficit as the panacea that would address the European crisis and prevent the United States from having a similar fate. This diagnosis is wrong but it is unfortunately not unique to the Republicans in this country. In fact, it is this way of thinking that has informed the European response to this crisis, a response that has not contained the crisis but made it spread and deepen.

In this respect, the experience of Greece, the country where the European sovereign debt crisis first surfaced almost two years ago, is very instructive not only because its debt crisis prefigured the debt crisis of a number of other countries in the continent (Ireland, Portugal, Spain, Italy, and counting) but also because the dismal failure of the austerity medicine prefigures what we are likely to see throughout Europe as austerity policies become generalized.

When the magnitude of the Greek debt became clear, the first reaction of politicians, journalists, and commentators around the world was to define the problem as a national problem, one which could be traced to the cultural pathologies and political dysfunctions of Greek society. While some of this commentary was correct (for example, the ability of wealthy Greeks to evade taxation), other tropes (such as the 'bloated' public sector) were downright misleading, since they obscured the fact that neither do public sector workers in Greece represent a larger share of the labor force than in other European countries nor is the Greek welfare state anywhere as developed or generous as that of other European countries, including ones that do not find themselves in the kind of severe fiscal crisis now facing Greece.

Moreover, these attempts to define the crisis as a national crisis diverted attention from the more important structural imbalances within the eurozone. Locking countries of vastly different levels of competitiveness and technological development into a common currency meant that countries in the European periphery, like Greece, found their productive structure and industrial capacity decimated as their markets were flooded by more competitive German products. In that context, economic growth in the periphery came to rely on easy and cheap credit fuelled by the mistaken belief of European banks that default by a member of the eurozone was inconceivable.

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http://mrzine.monthlyreview.org/2011/panayotakis171111.html