Why it’s misguided to treat the eurozone crisis as a morality tale about “lazy” southerners

As southern European countries rack up record debts, Helmut Kohl has told friends “Merkel is destroying my Europe”.

On 1 December, a 13-year-old girl died after inhaling carbon mon­oxide fumes in the Greek city of Thessaloniki. She and her un­employed mother had been trying to use a makeshift stove to heat their freezing flat, having had their electricity cut off several months earlier. In Greece, austerity continues to kill.

The Greeks have few friends in our part of Europe, however, as I discovered at a recent Intelligence Squared debate on Germany and austerity at Cadogan Hall in London. “Why should hard-working northern Europeans pay for the Greeks?” asked a Dutch member of the audience. “The Greek railway is so inefficient that it would be cheaper to move everybody by taxi,” sneered a German. There is a sense in southern Europe, suggested another audience member, that “money just grows on trees”.

Isn’t it odd that there is always money available to bail out banks but not people? As my fellow panellist Euclid Tsakalotos, a Greek economist and member of parliament for the left-wing Syriza party, put it to me afterwards: “Public debate has suffered a dumbing-down process.” How, he asked, could “a world economic crisis of such proportions that has affected so many economies ... be put down to differential work efforts”?

Work, or jobs, is what Greece lacks. One in four Greeks is unemployed; more than half of the country’s youth cannot find work. Suicides are up; the birth rate is down. On a visit to Athens in 2012, I met Nikitas Kanakis, the chairman of the Greek branch of the charity Doctors of the World. “If the people cannot survive with dignity,” he told me, “we cannot have a future.”

It is dangerous, misguided and mendacious, as countless economists from the New York Times columnist Paul Krugman to the Financial Times commentator Martin Wolf have pointed out, to treat the eurozone’s ongoing debt crisis as a modern-day morality tale. It isn’t.

Record debts were caused by post-crash bank bailouts and a crisis-induced collapse in tax revenues. Take Spain. That country’s downturn was the result not of excessive government spending or public debt but of the explosion of private debt, particularly in the real estate and banking sectors. Because of the crash, Spain’s public-debt-to-GDP ratio morphed from being one of the lowest in the eurozone to one of the highest.

Overspending didn’t cause the crisis but underspending is exacerbating it. Austerity isn’t working. Don’t take my word for it: a paper published in October by the European Commission’s Directorate-General for Economic and Financial Affairs revealed how the cumulative cost of fiscal self-flagellation across the eurozone was 6 per cent of GDP between 2011 and 2013. Crucially, the paper also pointed out that the catastrophically contractionary consequences of austerity in the southern debtor countries were “aggravated” by Germany and other northern creditor countries simultaneously cutting spending and raising taxes.

Another reason why we shouldn’t moralise about debt is to avoid the charge of rank hypocrisy. After all, why pick on the Greeks, rather than the Germans? In the years before the crash – for example, from 2003 to 2004 – Germany persistently breached the budget deficit rules laid down in the EU’s growth and stability pact; the then chancellor, Gerhard Schröder, demanded that his country be exempted from any penalties. In 2006, while Spain and Ireland were running budget surpluses, Germany was in deficit.

Then there’s the German private sector. In 2008, as an investigation by Bloomberg subsequently revealed, over-leveraged German banks and financial institutions received secret loans from the US Federal Reserve.

Now go back 60 years. In 1953, Germany’s postwar debt trap was lifted in London, at a conference of creditors in which the enormous amount of money the country owed was cut in half and the repayment period spread out over 30 years. One of those creditor countries was ... Greece.

Few historians would dispute that the astounding growth of the postwar German economy and the ascent of Germany to world economic power status wouldn’t have happened without the London Debt Agreement. So why such a different attitude now? Why the mocking, demonising and punishing of debtor countries such as Greece, Spain and Portugal? Why the pretence that debt forgiveness isn’t effective or doable or that it is without precedent?

It is perhaps because such a strategy would require bold and far-sighted leaders. What Europe needs right now is a Konrad Adenauer or a Charles de Gaulle, but the leaders it has to make do with are Angela Merkel and François Hollande.

Writing in these pages in June 2012, I attracted the ire of Germanophiles and deficit hawks alike by accusing Merkel, who was elected for a third term as chancellor in September this year, of “destroying the European project, pauperising Germany’s neighbours and risking a new global depression”.

But this isn’t merely the prejudice of a nasty British journalist picking on poor, defenceless Mutti. Listen to the former German chancellor, Helmut Kohl, who, according to Der Spiegel, has told friends: “She [Merkel] is destroying my Europe.”

A break-up of the eurozone may be where we are headed if spending cuts take precedence over debt defaults and if the financial crisis continues to be cynically portrayed as a morality play. What the continent needs is a debt jubilee and a halt to austerity. Oh, and some solidarity. Otherwise, a second Great Depression beckons.

To borrow a line from the US economist Michael Hudson: “Debts that can’t be repaid won’t be repaid.”

Mehdi Hasan is a contributing writer for the New Statesman and the political director of the Huffington Post UK, where this column is cross-posted

Members of the public relax in Athens in 2012. Photo: Getty.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 04 December 2013 issue of the New Statesman, Burnout Britain

Photo: Getty Images
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I'll vote against bombing Isis - but my conscience is far from clear

Chi Onwurah lays out why she'll be voting against British airstrikes in Syria.

I have spent much of the weekend considering how I will vote on the question of whether the UK should extend airstrikes against Daesh/Isis from Iraq to Syria, seeking out and weighing the evidence and the risks.

My constituents have written, emailed, tweeted, facebooked or stopped me in the street to share their thoughts. Most recognised what a difficult and complex decision it is. When I was selected to be the Labour candidate for Newcastle Central I was asked what I thought would be the hardest part of being an MP.

I said it would be this.

I am not a pacifist, I believe our country is worth defending and our values worth fighting for. But the decision to send British Armed Forces into action is, rightly, a heavy responsibility.

For me it comes down to two key questions. The security of British citizens, and the avoidance of civilian casualties. These are separate operational and moral questions but they are linked in that it is civilian casualties which help fuel the Daesh ideology that we cannot respect and value the lives of those who do not believe as we do. There is also the important question of solidarity with the French in the wake of their grievous and devastating loss; I shall come to that later.

I listened very carefully to the Prime Minister as he set out the case for airstrikes on Thursday and I share his view that Daesh represents a real threat to UK citizens. However he did not convince me that UK airstrikes at this time would materially reduce that threat. The Prime Minister was clear that Daesh cannot be defeated from the air. The situation in Syria is complex and factionalised, with many state and non-state actors who may be enemies of our enemy and yet not our friend. The Prime Minister claimed there were 70,000 ground troops in the moderate Free Syrian Army but many experts dispute that number and the evidence does not convince me that they are in a position to lead an effective ground campaign. Bombs alone will not prevent Daesh obtaining money, arms and more recruits or launching attacks on the UK. The Prime Minister did not set out how we would do that, his was not a plan for security and peace in Syria with airstrikes a necessary support to it, but a plan to bomb Syria, with peace and security cited in support of it. That is not good enough for me.

Daesh are using civilian population as human shields. Syrians in exile speak of the impossibility of targeting the terrorists without hitting innocent bystanders. I fear that bombing Raqqa to eliminate Daesh may be like bombing Gaza to eliminate Hamas – hugely costly in terms of the civilian population and ultimately ineffectual.

Yet the evil that Daesh perpetrate demands a response. President Hollande has called on us to join with French forces. I lived in Paris for three years, I spent time in just about every location that was attacked two weeks ago, I have many friends living in Paris now, I believe the French are our friends and allies and we should stand and act in solidarity with them, and all those who have suffered in Mali, Kenya, Nigeria, Lebanon, Tunisia and around the world.

But there are other ways to act as well as airstrikes. Britain is the only G7 country to meet its international development commitments, we are already one of the biggest humanitarian contributors to stemming the Syrian crisis, we can do more not only in terms of supporting refugees but helping those still in Syria, whether living in fear of Daesh or Assad. We can show the world that our response is to build rather than bomb. The Prime Minister argues that without taking part in the bombing we will not have a place at the table for the reconstruction. I would think our allies would be reluctant to overlook our financial commitment.

We can also do more to cut off Daesh funding, targeting their oil wells, their revenues, their customers and their suppliers. This may not be as immediately satisfying as bombing the terrorists but it is a more effective means of strangling them.

The vast majority of the constituents who contacted me were against airstrikes. I agree with them for the reasons I set out above. I should say that I have had no experience of bullying or attempts at intimidation in reaching this decision, Newcastle Central is too friendly, frank, comradely and Geordie a constituency for that. But some have suggested that I should vote against airstrikes to ensure a “clear conscience” ’. This is not the case. There will be more killings and innocent deaths whether there are UK airstrikes or not, and we will all bear a portion of responsibility for them.

A version of this article was originally sent to Chi Onwurah's constituents, and can be read here