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Economists Say Europe Facing ‘Lost Decade’

Shai Ahmed, CNBC
The austerity measures being rolled out in countries across Europe will have a devastating effect on the living standards of its population, an economist told CNBC Friday.

“These reforms are going to be devastatingly impacting on the population in these countries.

We are looking at a decade of lost living standards across most of Europe. The austerity measures are part of the solution but they are also going to deepen the downturn,” James Shugg, senior economist at Westpac, told CNBC.

He added that countries would be facing a prolonged period of hardship because tax revenues would also be hit.

“Europe needs to pull out all the stops and learn from its mistakes to ensure it can come through this with the least possible damage.

There is no easy solution to this, it will be hugely painful,” he said.

Robert Parker, senior advisor at Credit Suisse, questioned whether a solution even existed for the current debt crisis.
(18 November 2011)

Eurozone Crisis Q&A

Ed Lewis, Hugo Radice; New Left Project
Political economist Hugo Radice is a Life Fellow at the School of Politics and International Studies at the University of Leeds. In an interview with NLP’s Ed Lewis, he addresses a series of questions on the escalating crisis in the Eurozone.

Q: We are being told that the eurozone faces a sovereign debt crisis. Is this true and, if so, what does it mean?

A: Yes, it’s true. The crisis is centred on the unwillingness of global investors to purchase euro-denominated bonds issued by Eurozone governments that are deemed to have accumulated excessive levels of sovereign debt. On a day-to-day basis, the evidence for this unwillingness is reflected in the market price of bonds already issued by these governments.

A virtually universal feature of discussion in the British media is that the problems Europe now faces are significantly caused by huge debts taken on by the Greek and Italian states in order to pay for high levels of spending on welfare and public sector pay. The financial meltdown of 2008 sometimes features in the background of discussion, deeper causes for that (e.g. wage inequality) are virtually invisible. What’s your assessment of the mainstream diagnosis of the crisis? What would a more honest media be saying?

The mainstream diagnosis is firmly based on a belief that ‘free’ markets – free, that is, from public regulation or interference – are naturally efficient, meaning that they always tend to give a ‘true’ valuation of financial assets. Keynes rightly pointed out that most traders just follow the herd; so if a sufficient proportion of them think that the Greek government can’t or won’t meet its debt servicing and repayment schedule, then it becomes a self-fulfilling prophesy. Nevertheless, there has to be some basis in objective facts at the start of this process of collective judgement. In this case, the ‘objective fact’ is that the financial meltdown of 2008-9 pushed some ‘peripheral’ Eurozone states into levels of public debt that were clearly much harder to service than those of Germany. To the markets, it then made sense to demand much higher interest payments from the peripheral countries, when compared to what they demanded from Germany (or Britain, for that matter).

The media certainly need to qualify the mainstream view. When individuals or banks lent money to the Greek government in the years before the crisis, it was because at that moment the lenders thought that Greek bonds were the best (i.e. most profitable) available investment. The ‘haircut’, by which is meant a willingness to accept less than the nominal value of the bond when it falls due for repayment, reflects the need for those lenders to take responsibility for their past misjudgement. More generally, in this specific case, we have to ask why there were no more profitable investment opportunities in Germany, if their economy is such a shining example of good economic and political management. Or, for that matter, why didn’t they invest in the production of goods and services in the Europeriphery, rather than in financial assets and property speculation?

A major reason for this investor behaviour is the globalisation of finance. …
(16 November 2011)

Why Iceland Should Be in the News, But Is Not

Deena Stryker, The South African Civil Society Information Service
An Italian radio program’s story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt. The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here’s why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks’ foreign debt. In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy.

Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution. But only after much pain.
(15 August 2011)

Resources for Understanding the Crisis in Greece

Rust Belt Radical
The crisis in Greece leaps from one crumbling precipice to another. The situation changes from hour to hour. This week’s attempted capitalist coup, where all of the capitalist parties are to unite in government to prevent the Greek people from having a possibility of rejecting the savage austerity about to be imposed, shows just how unstable Greek society has become. A crisis of legitimacy has engulfed all of the traditional parties and organizations.

The Greek working class is inspiringly militant and creative; young folks in Greece rose in rebellion for weeks in December, 2008 over the cop killing of Alexis Grigoropoulos. That generation is now facing the most dramatic political and economic crisis in many decades. Greece is the sight of a real class war; if the Greek working class is forced to succumb to the austerity imposed upon it, it is hard to imagine any working class being able to resist the ruling class assault.

If you are like me, following Greek strikes and street actions has become routine these last few years and nothing warms your heart more than to catch a glimpse of Loukanikos, the Riot Dog, darting through tear gas to safety on the television news. If you are like me, you are constantly trying to figure out who is who politically and organizationally and without much luck at that. There is a bewildering array of organizations and coalitions and just what the politics and alignments are at any given time is sometimes hard to judge without reading Greek (difficult even if you do speak Greek, I imagine). If this week shows anything, it is that the machinations of the capitalist parties in Greece are even more Byzantine.

In the hope of coming to some grip on the situation, here are a selection of links to Greek leftist political and workers organizations followed by links to blogs and other news sources in English. Not all of
(7 November 2011)
It’s hard to get a picture of events in Greece from the mainstream press. Greece is important not only for its own sake, and the well-being of its citizens, but because it may be a harbinger of what’s in store for other countries. This is from a leftist site.