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
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The campaign to keep Britain in Europe must be based on hope, not fear

Together we can show the world a generous, outward-facing Britain we can all be proud of.

Today the Liberal Democrats launched our national campaign to keep Britain in Europe. With the polls showing the outcome of this referendum is on a knife-edge, our party is determined to play a decisive role in this once in a generation fight. This will not be an easy campaign. But it is one we will relish as the UK's most outward-looking and internationalist party. Together in Europe the UK has delivered peace, created the world’s largest free trade area and given the British people the opportunity to live, work and travel freely across the continent. Now is the time to build on these achievements, not throw them all away.

Already we are hearing fear-mongering from both sides in this heated debate. On the one hand, Ukip and the feuding Leave campaigns have shamelessly seized on the events in Cologne at New Year to claim that British women will be at risk if the UK stays in Europe. On the other, David Cameron claims that the refugees he derides as a "bunch of migrants" in Calais will all descend on the other side of the Channel the minute Britain leaves the EU. The British public deserve better than this. Rather than constant mud-slinging and politicising of the world's biggest humanitarian crisis since the Second World War, we need a frank and honest debate about what is really at stake. Most importantly this should be a positive campaign, one that is fought on hope and not on fear. As we have a seen in Scotland, a referendum won through scare tactics alone risks winning the battle but losing the war.

The voice of business and civil society, from scientists and the police to environmental charities, have a crucial role to play in explaining how being in the EU benefits the British economy and enhances people's everyday lives. All those who believe in Britain's EU membership must not be afraid to speak out and make the positive case why being in Europe makes us more prosperous, stable and secure. Because at its heart this debate is not just about facts and figures, it is about what kind of country we want to be.

The Leave campaigns cannot agree what they believe in. Some want the UK to be an offshore, deregulated tax haven, others advocate a protectionist, mean-hearted country that shuts it doors to the world. As with so many populist movements, from Putin to Trump, they are defined not by what they are for but what they are against. Their failure to come up with a credible vision for our country's future is not patriotic, it is irresponsible.

This leaves the field open to put forward a united vision of Britain's place in Europe and the world. Liberal Democrats are clear what we believe in: an open, inclusive and tolerant nation that stands tall in the world and doesn't hide from it. We are not uncritical of the EU's institutions. Indeed as Liberals, we fiercely believe that power must be devolved to the lowest possible level, empowering communities and individuals wherever possible to make decisions for themselves. But we recognise that staying in Europe is the best way to find the solutions to the problems that don't stop at borders, rather than leaving them to our children and grandchildren. We believe Britain must put itself at the heart of our continent's future and shape a more effective and more accountable Europe, focused on responding to major global challenges we face.

Together in Europe we can build a strong and prosperous future, from pioneering research into life-saving new medicines to tackling climate change and fighting international crime. Together we can provide hope for the desperate and spread the peace we now take for granted to the rest of the world. And together we can show the world a generous, outward-facing Britain we can all be proud of. So if you agree then join the Liberal Democrat campaign today, to remain in together, and to stand up for the type of Britain you think we should be.