The broken glass in Greece falls on frozen streets these days as Mediterranean states experience unprecedentedly low temperatures. It is testament to the sad desperation of the Greek people that there are often protests and riots in freezing conditions. Ten years of austerity or Greece leaves the Euro zone – problem solved.
It’s like saying the rest of Europe will be warm if Greece leaves Europe, utter erroneous nonsense perpetrated by neoclassical economists whose faith in the system as it stands is not only flawed but it is downright damaging. Statistics abound the news reports about Greece’s debt to gross domestic product, their government recently borrowed a further 130 billion Euros to stave off a default. The figures are staggering but does austerity work? Has it ever worked? To the people of any country austerity means unravelling what we have bought with the collective purse. This represents rewinding the achievements of a democracy, democracy conceived by Greeks in Greece.
But we needn’t talk about that country because the entanglement is not confined to just that crisis. It is a crisis of thought and the inability for politicians and economists to even mention some of the fundamental causes of it – problems that are just too inconvenient to recognise, partly because they defy common sense. This then brings me on to fiat currency – money which is declared by the government to be a legal tender. One problem is the so-called ‘money multiplier’ effect. It is a process by which a bank takes money received from the government and creates money to lend out. From one hundred pounds, a ten percent fraction is taken, giving another bank ninety pounds. That bank then keeps nine pounds and lends out eighty one pounds – all money created simply out of thin air. The process repeats itself until there have been a number of reserve deposits made and around one thousand pounds of credit has been created, the theory is that this is credit available for people and companies to borrow. It is perhaps one of the key reasons why we have such vast economic turmoil, and it is not even mentioned in the news.
Another thing that the primary economists and politicians don’t like to talk about is our country’s personal debt – debt that has exceeded one trillion pounds in the United Kingdom. The government then asks the banks to ‘get lending again’. Historically, in pre-capitalist societies, there were sorts of debt jubilees. Debts had to be written off to keep the system from imploding. What happened in society was that the banks, using conventional economic wisdom as a smokescreen, persuaded people to take out loans that they may not have wanted if they had realised the long term instability of the system. They persuaded us that we might make a gain based on market leverage speculation. What most of the people failed to see was the epic instability of the system. Now the government are trying to repair the damages by penalising the people.
The IMF (International Monetary Fund) strategy to deal with countries with a high government debt is to advise that they inflict higher taxes, keep interest rates down, make cuts and privatise things. This is to try to balance the books but it only takes money away from people; it requires that you need more austerity to deal with the impact of the previous austerity. You want to keep people spending but you have to try to prove to the IMF you are a country that can borrow money and pay it back. This is what has happened in Greece. If your country begins to have a toxic debt – it seems like it is not capable of paying back the money it already owes – then countries and banks are not confident in lending them the money they need to keep their country’s apparatus going. What happens if, like Greece or Italy, your sums don’t add up? You have to pay larger sums of interest on the money you borrow, leading to even less money to spend on paying teachers or doctors, maintaining your infrastructure or compensating those who don’t have opportunities with some benefits. This is why the UK government is desperate to keep its AAA credit rating; to keep its money cheap. But to do this it has to enact austerity measures to compensate for the impact of austerity measures, just to keep the system going.
A problem Greece faces that we are desperate to avoid here is that its rich people are taking their investments elsewhere because it is so volatile and expensive to operate. This adds to the problems of the country as high unemployment leads to less tax revenue; less tax revenue leads to a greater risk of default and a higher risk of default leads to a loss of sovereignty as lender nations and the IMF take control of your economy and therefore your democracy. It leads to knock-on effects as extreme reactions take place. Disorder becomes the norm and society becomes precariously close to an all-out uprising. Over here the government was desperate to point to a sick criminal underclass that created the riots last year – it is interesting to think that you would need 4250 riots to take place to equal the cost of bailing out the banks.
Whilst the voice of reason could easily be read as the harbinger of doom, there is now an opportunity to solve these issues – all it takes is a logical approach to economic policies. It is beyond this writer to prescribe the intricacies of economic programmes that can solve our economic crisis, but there are economists that know how to deal with this. The problem is that there is so much at stake for the people who are interested in keeping the system the way it is, they stand to have their luxurious lifestyles unravelled and reorganised along more stable lines. Instead of Occupy movements occupying the town centres, they should maybe occupy the economics departments of our universities and point out some of the things I have merely touched upon here. The erroneous faith in austerity and neoclassical economics can be dealt with without, as the Greek youth are doing, smashing the windows that symbolically point to the problem. Economic analysis points towards a Greek default and historical comparison points towards revolution. If the crisis continues then it must surely spread to other nations with many countries, including our own, being massively exposed to contagion. At the very least, if we continue in this manner we can expect to see this crisis continuing without a properly just economic model. Writing off some debt might just be the only way out of this crisis.