Who will pay for resolving the Greek drama?
As the economic news continues to worsen, there is in fact no shortage of solutions to the economic problems facing the EU over Greece. Reaching the right solution (or mix thereof) does not require a fundamentally technocratic decision. The key question is not how to solve the crisis, but who will pay. So far, it looks like the people of Greece – as they are in many other European countries – are in the firing line, facing swingeing cuts to public services, 16% unemployment already, tax increases and a generation or more of stagnant or falling living standards in the form of wages or pensions. But as the possibility of default or restructuring becomes more likely, other potential losers come into the frame.
A disorderly default should still be the least likely option, because it can be avoided, and everyone agrees it would have the most catastrophic impact, on almost everyone involved. However, few people are betting on a rational exit. An orderly default, or significant restructuring, is much more likely, and could even be beneficial – but it would clearly hit other people in the pocket (depending on how it is done, that could be northern European taxpayers or the rich – no prizes for guessing who the TUC would prefer the cost to fall on).
Tax increases on the rich – already planned by the Greek Government, although accompanying tax increases on the rest as well – are unlikely to reduce significantly Greek debt or promote growth. But taxes are good at promoting social justice and equality, and progressive taxes – especially if coupled with anti-avoidance measures – can shift some of the costs of the crisis from the poor onto the rich.
In the long-term, growth is vital – the disagreements are mostly around how to promote it – but most people don’t think it would be possible in the short-term for Greece to grow itself out of the hole its public finances are in. On the other hand, recession is clearly making matters worse, so immediate growth stimuli would still be beneficial if they don’t worsen the problem. It is insanity that the EU has not relaxed the requirement for the Greek Government to match EU money for capital programmes for instance: these could be deployed quickly to ameliorate the impact of public sector cuts.
And of course it is possible to pass the costs onto future generations who, if growth results, will be better off and better able to meet those costs. Lengthening repayment terms, slowing the redemption of debt and reducing the interest rates would all have that effect, while also, again, shifting costs in the present from the ordinary working families in Greece to the rich.
Looked at this way, eurobonds, default and quantitative easing are all ways of changing who pays for the crisis. Austerity is not the only option, it is a choice to make the poor pay for a crisis they did not cause. As yet, the arguments being advanced by trade unionists have not secured support from governments across Europe. If the ‘shock doctrine’ thesis is correct, we may never win that argument – but there are some small signs (such as the electoral shift leftwards in Denmark and Germany, albeit hardly massive or unambiguous) that electorates will respond as they did – eventually – after the Great Depression of the 1930s by giving politicians space to create welfare states, promote equality and empower working people through collective bargaining to shift wealth away, over a long generation, from the rich.