"Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable."
[Milton Friedman, “Capitalism and Freedom”]
Ever since the 1970s, neo-liberal market-fundamentalist policy alternatives to the mixed-market and social market model have been developed and tested, initially during Chile's infamous 'Chicago Boys' experiment. In the 1980s, they began their victory lap around the world with the ‘help’ of IMF structural adjustment programs and the 10 commandments of the Washington Consensus. The 1980s debt crisis provided the first opportunity to apply them in Latin America and Africa. Then, after the fall of the iron curtain in the late 1980s/early 1990s, IMF structural adjustment programs moved on to former communist countries in Eastern Europe and the former Soviet republics; then to Asia following the Asian financial crisis in the late 1990s. In the 2000s, the terrorist attack of 9/11/2001 provided fertile crisis conditions for their implementation in the United States, including a nearly complete deregulation of the financial sector and the attempted privatization of social security.
Only one major continent was still missing: Europe ! A tough sale, for several reasons: first, because Europeans are particularly attached to their social market policies; second, because the IMF Managing Director has traditionally been a European and thus hesitant to implement highly unpopular IMF adjustment policies in Europe. And third, Europe was not in crisis. And so, while a full-blown IMF adjustment program was not possible in Europe, standard IMF conditionality found its way into major European treaties, such as the Maastricht Treaty (e.g. the 2% inflation target, the 3% public deficit target and the 60% public debt stock target), the Lissabon Strategy and others. But to really remake European economies and apply a broad spectrum of market-fundamentalist neo-liberal policies, Europe needed a crisis.
Enter the 2008 Global Financial Crisis and the ensuing Eurozone debt crisis
The twin crises of 2008/2009 provided fertile ground for real change in the Milton Friedman sense: the “politically impossible” became the “politically inevitable”, namely the dismantling of the European welfare state, the privatization of public enterprises, and the shrinking of government “down to a size where we can drown it in a bathtub” (Grover Norquist, US conservative ideologue). Vis-à-vis the European public, the measures were justified by a Macchiavellian re-interpretation of the Eurozone's second financial crisis caused by government-financed bank bail-outs into a sovereign debt crisis blamed on excessive government spending on social programs, public enterprises and state employees.
And so, true to Milton Friedman's words and the motto "don't ever let a good crisis go to waste", the 'Troika' [1] of IMF, EU, and ECB went to work on the countries of the European periphery most affected by the twin crises: Ireland, Portugal, and Greece.[2]
Case Study Greece
A quick scan of the IMF Letter of Intent and Memorandum of Economicand Financial Policies for Greece dated March 9, 2012 shows that while the IMF adjustment program for Greece pays lip service to the equitable distribution of adjustment costs, in essence it follows the same market-fundamentalist agenda of 'traditional' IMF structural adjustment programs, with the costs squarely on the shoulders of those who depend on the public sector, i.e. mainly the elderly, students, the sick, and the poor:
- fiscal austerity, focused on the expenditure side rather than the revenue side
- reduction of public sector employees, reduction of public sector wages and pensions
- privatization of public enterprises and services
- deregulation and liberalization of all markets, including the labor market
According to the IMF Memorandum, "the bulk of adjustment will be achieved through expenditure cuts that aim at permanently reducing the size of the state....by closing entities....and by targeted reductions in public employment".....The key fiscal reforms include reductions in public sector employment and wages; pension reform (meaning cuts) as well as cuts in health expenditures and other social benefit programs" (pages 6-8).
A new feature in the IMF adjustment program for Greece is the focus on nominal wage reductions to lower unit labor costs and thus enhance competitiveness, a ‘structural’ measure close to the heart of the Schwabian housewives and housemen in Berlin. They seem to forget (again) that economic policy is more complicated than the budgeting of Schwabian housewives. The unit labor cost ratio, for example, has a denominator (output) as well as a numerator (cost of labor): so, instead of reducing the numerator (cost of labor), the unit labor cost ratio can also be reduced by an increase in the denominator, i.e. output, hence productivity. And productivity can be enhanced by investing in human resources (training, education) and the tools they work with (investment in research and development). Wouldn’t that be a more humane approach, with the added benefit of an increase in aggregate demand, employment, and economic growth ?
Instead, the IMF adjustment program for Greece recommends wage cuts, interferes with national labor market policies, seeks to permanently reduce the size of the state, and imposes market-fundamentalist, pro-cyclical austerity measures in a recession, setting in motion a vicious cycle of economic declines [3] which, if not halted, will eventually lead to the complete economic collapse and bankruptcy of Greece.
We have to stop this craziness NOW, or else Greece will go down....and the rest of Europe with it ! Because - let's not be naive - Greece is just the beginning. Similar programs are already being designed for other countries, including prosperous Germany ! (see the 15-point plan of last Sunday's Welt am Sonntag: "Agenda 2020")
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[1] The 3-part commission composed of officials from the International Monetary Fund (IMF), the EU Commission (EC), and the European Central Bank (ECB) is charged with the monitoring of the economic conditionality and structural benchmarks attached to the IMF adjustment loans and the European bail-out funds extended to highly indebted European countries.
[2] Spain and Italy are applying IMF-style austerity policies on their own to regain investor confidence.[3] See the description of the vicious economic cycle in the welcome note of this blog.
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