Austerity Foolishness

Yesterday, I linked to an article by Harold Meyerson about the current German government’s unwillingness to learn a critical lesson from its own history as it digs in on the issue of Greece’s obligations to repay its debt. The issue of Greece’s debt took on new urgency, and a different dynamic, when the voters of that seminal democracy selected a new government, giving a near-majority of seats in parliament to the radical left party Syriza and making that party’s charismatic leader, Alexis Tsipras, the nation’s new prime minister.

Syriza won the elections promising to renegotiate the country’s debt. In 2010 and 2012, the other governments in the Eurozone, the European Central bank, and the International Monetary Fund forced Greece to adopt a severe austerity program in exchange of a bailout. The bailout avoided a sovereign debt crisis, but it plunged Greece into a deep depression, much worse than anything the U.S. experienced in 2008-2009. Unemployment stands at 25% and youth unemployment is north of 50%. The economy as a whole actually has shrunk by 26%, which is not a recipe for the kind of sound economic progress that would lead to an eventual repayment of the outstanding loans but it is a recipe for social turmoil and great suffering.

I am not a partisan of Mr. Tsipras. He declined to take his oath of office on the Bible. He may not be a believer, but if he had bothered to open that book, he would have found strong moral arguments against the kind of austerity programs that were forced on his country. His outreach to Russia is a deeply disturbing sign, one that should worry the government of Angela Merkel as much as the prospect of a debt renegotiation. But, I can sympathize with those who voted for Tsipras and his party. They have been made to pay for decisions over which they had no control, including a shady effort by Goldman Sachs to hide the extent of Greek indebtedness in previous years.

In his column, Meyerson pointed out that the German government and people should be glad that its creditors did not adopt the stance they currently take towards Greece in the postwar years. Irony of ironies is that Greece was one of those creditor nations! In 1953, Western governments wrote off fully half of Germany’s debt and devised a program for repayment of the remainder that specifically protected government spending from being tapped for debt repayment. The Western governments knew that no one benefited from a weak and prostrate Germany. Already, the Marshall Plan was pumping large amounts of cash into the devastated countries of Western Europe. In the interests of the future, the sins of the past were overlooked and forgiven. Stability returned, and so did the German economy. As a young man, I remember hearing worries that the German and Japanese economies were outstripping that of the U.S.

Meyerson could have gone back even further in German history. After World War I, the victorious Western allies imposed harsh reparations on Germany. All countries, victor and vanquished alike, had seen their economies deranged by the war. In 1922, the British government proposed a universal cancellation of war debts, but the United States, which was the principal creditor nation, refused. The UK announced it would not collect any debts or reparations beyond what was needed to pay of its own debt to the United States, hoping this generous action would prompt the United States to reconsider. President Calvin Coolidge replied, “They hired the money, didn’t they,” which prompted from Winston Churchill, then the Chancellor of the Exchequer, the reply: “This laconic statement was true, but not exhaustive.” The consequent economic instability of the Weimar Republic turned that fledgling democracy into a seedbed for extremism. We all know the unhappy consequences that resulted.

Greece is not Germany. Greece also must get its own house in order, and it can start by cracking down on the endemic tax evasion that has plagued the government budget for decades. But, to continue to expect Greece to abide by an agreement that forces extreme poverty on so many of its own citizens is insane and unconscionable.

In a statement issued in advance of the Greek elections, Eric LeCompte of JubileeUSA, said, “In a post-financial crisis world, there’s broad agreement that austerity doesn’t work. Austerity programs can be likened to kicking a patient on life support in an effort to help them recover.” JubileeUSA has been at the forefront of efforts to help poorer, debtor nations climb out from under the burden of foreign debt that was, for all intents and purposes, negotiated at knifepoint. Certainly, the IMF must reconsider its approach to these issues, not only in Europe where the future of the Euro is at stake, but in many even poorer nations in the global south. The dislocations of the world economy in the past thirty years of free trade and globalization are scarcely less severe than those produced by a war economy. Austerity is not the answer. Irresponsible governance with every Keynesian faucet wide open is not the answer either. Balance, perspective, judiciousness and far-sightedness are called for. That is what Germany got in 1953 and what it did not get in the 1920s. Which result worked better? "You can't queeze blood out of a turnip," my mother used to say. And, you can't squeeze a humane economy out of forced austerity programs.