The eurozone crisis is most definitely not a story of countries with out of control spending getting their comeuppance in the bond market. Prior to the economic collapse in 2008, the only country that had a serious deficit problem was Greece. In the other countries now having trouble financing their debt, the debt to GDP ratio was stable or falling prior: Spain and Ireland were actually running budget surpluses and had debt to GDP ratios that were among the lowest in the OECD.Iceland did just that, let their larger banks in trouble go bankrupt, let their stockholders take losses and reorganized them as clean banks. Ireland, on the other hand, took the bad loans onto the books of the state and ran their debt much higher to do it. Even then, Ireland had not overborrowed. They just became a target of the bond speculators - after having been praised by fans of neoliberal economics as a deregulation success story.
The [2007-8] crisis changed everything. It threw the whole continent into severe recession. This had the effect of causing deficits to explode since tax revenues plummet when the economy contracts and payments for unemployment benefits and other transfer programmes soar. Spain was hit especially hard by this contraction because it had a huge housing bubble. This bubble fuelled an enormous construction boom that went bust after the crash.
Ireland saw its debt explode because it got stuck with a huge bill from bailing out its free-wheeling bankers. It is possible that its financial system could have been kept intact at a lower cost to taxpayers by forcing creditors to take losses. [my emphasis]
He also describes the failures of the European Central Bank (ECB), both in allowing bubbles like the one in Spain to grow to the point they did and now in fighting against the entirely necessary and sensible policy of having the ECB act as the lender for eurozone countries' bonds. He doesn't mention that the ECB is constrained by law in that regard, though there are immediate workarounds. And if the EU-minus-one countries can change their treaties to enforce Herbert Hoover austerity economics that will only make the debt crisis worse, they could also have adjusted the law to allow the ECB to play that role in a direct and straightforward way.
Baker puts it into its broader social and political context, with reference to one of the political spin-offs in the US:
People should recognise this process for what it is: class war. The wealthy are using their control of the ECB to dismantle welfare state protections that enjoy enormous public support.It's a bit strange that "class war" has become a respectable term, I assume because the Republicans have been using it against any policy that might interfere with corporations plundering the country as they like. I guess "class struggle" is still taboo in political discourse. Even though "class war" is actually a more severe image!
This applies not only to government programs like public pensions and healthcare, but also to labour market regulations that protect workers against dismissal without cause. And of course, the longstanding foes of Social Security and Medicare in the US are anxious to twist the facts to use the eurozone crisis to help their class war agenda here.
The claim that the countries in Europe are just coming to grips with the reality of modern financial markets is covering up for the class war being waged on workers across the globe.
Tags: dean baker, eu, euro, european union