Jul 1 2010

It’s All Greek To Them

Austerity for all is seen as bailout’s message

Photo Credit: Flickr Creative Commons/tjuel

Photo Credit: Flickr Creative Commons/tjuel

In recent months, the Greek financial system has collapsed, necessitating a nearly $150 billion bailout backed by other European nations. Corporate media in the U.S., led by Fox News and the Washington Post, have taken this as an opportunity to proclaim the demise of the European social model and to castigate working-class protests against austerity measures.

CNN (5/6/10) host Jack Cafferty chastised Greek workers: “The panic was triggered in part by Greece. Greece is a world-class welfare state. People retire in their 50s. They’re accustomed to government handouts at every turn. Now the Greek government says we’re going to have to cut back, and people go crazy.”

On a New York Times blog (5/10/10), Carmen M. Reinhart wrote that “the need for fiscal austerity in Greece is not an artificial imposition by the IMF and big governments of the European Union. It is an arithmetic reality.” In the same discussion, Yves Smith lamented that the Greek people “do not appear willing to make the depth of sacrifice demanded of them.”

But such measures may have potentially disastrous deflationary consequences, rarely mentioned in the corporate press. Drastic cuts in social spending during a recession will create downward pressure on prices and wages, driving the tax base lower, with significant social repercussions. However, instead of calling on the European Central Bank to focus on preventing deflation, media elites are in a frenzy over the possible effects of almost non-existent inflation on richer European nations (CEPR, 3/15/10).

“Experts” within mainstream media warn Greece against abandoning the euro, as it would likely result in a default on the nation’s loans—a scenario unacceptable to media elites, despite recent lessons from other countries. When the economy of Estonia crashed, the country kept its currency pegged to the euro and adopted harsh austerity measures. This resulted in significant economic contraction, with unemployment rising from 2 percent to 19.8 percent (Business Week, 5/14/10) and IMF projections showing Estonia’s economy to be worse off in 2015 than it was in 2007 (Guardian, 4/28/10).

By contrast, when Argentina was hit by recession in 1998, it tried keeping its currency pegged to the U.S. dollar—until the economy crashed in 2001. The government then defaulted on its loans and devalued its currency; though the move resulted in continued shrinkage for one quarter, that was followed by 63 percent GDP growth over six years (Guardian, 5/18/10).

But the potential upside to default goes virtually unmentioned, with paying back debts to banks treated as a sacred duty—suggesting more concern for the welfare of the world’s wealthy than for its workers (e.g., Washington Post, 4/23/10, 4/24/10).

Media elites have failed to explain that Greece’s troubles are in large part the consequence of domestic political problems (e.g., AP, 5/31/10). Significantly, the OECD estimates that up to 30 percent of Greece’s economy is black market (Huffington Post, 5/3/10), meaning that the size of the country’s debt proportional to its real GDP is smaller than it appears. Furthermore, Greek law makes it easy for the wealthy to evade taxes—a legacy of the country’s military dictatorship—greatly reducing revenues for the government (Michael Hudson, 5/5/10). Greece spends a greater percent of its GDP than any other EU country on the military, while it ranks second to last in teacher salaries (Dollars and Sense, 4/14/10). USA Today (5/10/10) put a rare human face on austerity proposals with a profile of a Greek schoolteacher, accurately summing up her situation as “a hard life [that’s] about to get harder.”

While Greece gets most of the attention, it serves as a springboard for generalizations about “generous” European social welfare systems that, media tell us, are all going to have to face serious revisions.

The L.A. Times (5/5/10) ran an editorial by Daniel Akst that criticized both the “excesses of capitalism” on the American side and the “excesses of socialism” on the European side, equating European governments’ ex-penditures on social welfare with the irresponsible financial practices of the American market. Meanwhile, the Washington Post (5/11/10) blamed the “generous work rules and social welfare programs” established by “unions and socialist movements” across Southern Europe.

“Fiscal Crises Threaten Europe’s Generous Benefits,” warned the Associated Press (5/23/10), which outlined the many social benefits that Europe must cut, quoting experts who declare the welfare state to be simply unaffordable.

Much media coverage has pointed to other European nations whose economies have seen sharp declines, particularly Spain, Portugal, Ireland and Italy, as evidence that the welfare state model is to blame for the current crisis (e.g., Washington Post, 5/10/10).

But Europe’s social welfare programs have virtually nothing to do with the region’s economic crisis. In fact, both Spain and Ireland were running budget surpluses before the global recession, with low debt-to-GDP ratios. The downturn in their economies was caused by a collapse of their respective housing bubbles; because all the European economies are tethered together by the euro, housing bubbles in several European countries drove the current crisis affecting the entire euro zone (Beat the Press, 5/8/10). Meanwhile, the European countries with the strongest social safety nets—like France, Germany, the Nether-lands and the Scandinavian countries—have much healthier economies than those with weaker social programs (Beat the Press, 5/11/10); Denmark, Norway, Sweden and Finland all have unemployment rates below the EU average of 9.6 percent (AP, 5/23/10).

Pundits also used Greece and the European crisis as a warning of what could happen to the U.S. if deficits aren’t slashed—through cuts in social welfare spending, of course.

CNN host Christine Romans (5/16/10) talked of the U.S.’s “uncomfortable parallels with Europe,” citing America’s “$1.6 trillion budget deficit. Nearly 40 million people now being fed with food stamps. Up to 99 weeks of jobless checks for the 15 million unemployed.” (Romans did ack-nowledge that there are significant differences between U.S. and European economies.)

Syndicated columnist George Will (5/16/10) disdained “the fragility of Western Europe’s postwar social model—omniprovident welfare states lacking limiting principles.” Will concluded: “The U in the EU—the unifying thread—is indiscipline. Increasingly, it also is the unifying characteristic of the USA.”

Not surprisingly, commentators on Fox went further. Sean Hannity (5/6/10) warned: “So, they had set up almost, like, the perfect nanny state in Greece…. It seems to me this is the direction America is now headed.”

That same day on Special Report, Steve Hayes took the opportunity to attack healthcare legislation: “As part of these austerity rules that Greece had agreed to in order to get this bailout from the IMF and from Europe, one of the things that they had to do was move to privatize their healthcare system. It was too statist…. So at the same time…we are moving in the opposite direction. I mean, there is a great irony here.”

Comparing the two economies, however, is far-fetched. Greece has an undiversified economy 2 percent as big as that of the U.S. And countries across the world have a vested interest in the performance of the dollar, as many keep their reserves in U.S. currency.

Most importantly, Greece is monetarily a non-sovereign nation. As part of the euro zone it does not have the power to print its own money or set its own interest rates. Thus it cannot devalue its currency to lower the price of its exports, allowing the country to regain competitiveness on the global market—as the U.S. has done.

While CNN’s Jack Cafferty (5/6/10) agreed it was “a stretch” to say what happened in Greece would occur here, he took the opportunity to argue for austerity in the U.S.:

Here in the United States, we have a growing welfare state. We have food stamps and aid to dependent children and unemployment insurance and Medicaid and rent subsidies and welfare and, of course, tens of millions of illegal aliens. We have a $12 trillion debt that we’re unable to pay. And while it ain’t going to happen tomorrow, at some point, we’re going to be faced with the realization that we can’t do it this way anymore, something has got to give.

In a New York Times article (5/12/10), David Leonhardt asked, “How different, really, is the United States [from Greece]?” He concludes that although there are significant differences, the underlying problem remains the same: spending more than we can afford. Leonhardt proclaimed: “Politicians…are not the main source of the problem. We, the people, are.”

Despite providing a more nuanced assessment than many corporate reporters, Leonhardt’s report was typical in that it focused blame on workers while glossing over the greed and recklessness of the financial markets. Such scapegoating seems to be the real common denominator between the economies of Greece and the U.S.

Veronica Cassidy is a Brooklyn-based freelance writer and frequent contributor to Extra!.