Euro Zone Crisis

Misdiagnosing European austerity

PUBLISHED : Friday, 14 December, 2012, 12:00am
UPDATED : Friday, 14 December, 2012, 3:03am

Tom Holland's Monitor column ("Opponents of austerity are barking up the wrong tree", December 10) is excellent. That is, it is an excellent example of the narrow, ahistorical and uncritical approach of neo-liberal economics.

Giving credit where credit is due, Holland is of course correct that gross domestic product is a blunt measure. However, his dedication to economic theory seems to have blinded him to reality.

More eminent economists than Charles Gave - both orthodox and heterodox - have refuted the old chestnut of relative public sector inefficiency. They have also proposed models that explain very well how the global system has come to this point and how that has affected European Union countries in the grip of austerity measures.

Moreover, they have achieved this with thorough historical analysis rather than blind application of textbook assumptions to a country-specific "market", devoid of any context.

Greece, from which the column ran a photograph, is an interesting example. While space obviously precludes an extensive explanation, a few points are salient.

The country was the object of huge capital flows that were not subject to democratic oversight and, further, were a logical and essential profit-making venture in a system awash with what the Bank for International Settlements, the European Central Bank and others label "excess liquidity".

This excess liquidity is an inevitable consequence of a global political economy structured in the interests of free capital, and the debt crises it engenders are just as inevitable. In Greece's case, its government has also bowed to external pressure and taken on some private (that is, financial-sector) debt as sovereign debt, deepening the crisis unnecessarily.

So even though the crisis was not made in Greece (much as the Asian financial crisis was not made in Asia), even though the increase in government debt was largely hidden from the people, and even though not all of the debt is even public, we are to believe that squeezing the average Greek through a long-discredited structural adjustment policy - for that is what Gave really means - is the answer.

Holland here has not only misdiagnosed the problem, but is also underestimating protesters' understanding of how the global system works in their local context.

In addition, repeating Gave's perspective without explaining his background is misleading. Gave runs a free-market liberal think tank and was a long-time correspondent of Milton Friedman, whereas Holland seemingly has the reader believe that Gave has "no dog in this fight", so to speak.

Philip Annetta, Aberdeen