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

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Jeremy Corbyn challenged by Labour MPs to sack Ken Livingstone from defence review

Former mayor of London criticised at PLP meeting over comments on 7 July bombings. 

After Jeremy Corbyn's decision to give Labour MPs a free vote over air strikes in Syria, tonight's Parliamentary Labour Party (PLP) meeting was less fractious than it could have been. But one grandee was still moved to declare that the "ferocity" of the attacks on the leader made it the most "uplifting" he had attended.

Margaret Beckett, the former foreign secretary, told the meeting: "We cannot unite the party if the leader's office is determined to divide us." Several MPs said afterwards that many of those who shared Corbyn's opposition to air strikes believed he had mishandled the process by appealing to MPs over the heads of the shadow cabinet and then to members. David Winnick declared that those who favoured military action faced a "shakedown" and deselection by Momentum activists. "It is completely unacceptable. They are a party within a party," he said of the Corbyn-aligned group. The "huge applause" for Hilary Benn, who favours intervention, far outweighed that for the leader, I'm told. 

There was also loud agreement when Jack Dromey condemned Ken Livingstone for blaming Tony Blair's invasion of Iraq for the 7 July 2005 bombings. Along with Angela Smith MP, Dromey demanded that Livingstone be sacked as the co-chair of Labour's defence review. Significantly, Benn said aftewards that he agreed with every word Dromey had said. Corbyn's office has previously said that it is up to the NEC, not the leader, whether the former London mayor holds the position. In reference to 7 July, an aide repeated Corbyn's statement that he preferred to "remember the brilliant words Ken used after 7/7". 

As on previous occasions, MPs complained that the leader failed to answer the questions that were put to him. A shadow minister told me that he "dodged" one on whether he believed the UK should end air strikes against Isis in Iraq. In reference to Syria, a Corbyn aide said afterwards that "There was significant support for the leader. There was a wide debate, with people speaking on both sides of the arguments." After David Cameron's decision to call a vote on air strikes for Wednesday, leaving only a day for debate, the number of Labour MPs backing intervention is likely to fall. One shadow minister told me that as few as 40-50 may back the government, though most expect the total to be closer to the original figure of 99. 

At the end of another remarkable day in Labour's history, a Corbyn aide concluded: "It was always going to be a bumpy ride when you have a leader who was elected by a large number outside parliament but whose support in the PLP is quite limited. There are a small number who find it hard to come to terms with that result."

George Eaton is political editor of the New Statesman.