What is good for the Greeks would also be good for Europe. Although some level of austerity was needed across Europe, to reduce fiscal deficits, it has been carried out in a very damaging way: it has depressed economic growth and has been inflicted on the poorest members of society. The widespread feeling that a country should be punished for past overspending has to be balanced against the need to look forward to the best way of recovering from Greece’s current predicament and Europe’s continued economic slump. The suggestion that Greece should leave the Eurozone – a ‘Grexit’ – is based on the assumption that Greece is the only country with a problem, yet this is far from the case.
Right-wing commentators have been arguing that austerity is the only way back to fiscal rectitude and that irresponsibility has to be punished. For example, a recent Spectator article argued that “austerity really is a virtue” and that “Greece is an incorrigible basket-case”; it also suggested that the IMF and the European Central Bank (ECB) agreed. On the contrary, the IMF has acknowledged that “Austerity is much worse for the economy than we thought” and a Wall Street Journal report suggested that the ECB “would like to do more to spur growth” but that Germany is holding it back. Studies suggest that austerity reduces growth. Paul Krugman and other prominent economists have argued that a Keynesian approach, of applying an economic stimulus during a depression, is more appropriate.
The application of austerity has been grossly unfair. In Britain, for example, wealthy individuals and corporations have not shouldered much of the burden of recovery; the government reduced the higher rate of income tax, and wealthy corporations moved their profits to Luxembourg to avoid paying corporation tax. Instead, the poorest members of society have been targeted with an artificial benefit cap and the ‘bedroom tax’ – which have been popular with the majority of the electorate, who are unaffected and who dislike ‘benefit scroungers’, but which have been a very blunt instrument for cutting the benefit budget. A large portion of the benefit budget now goes to the working poor, not to the unemployed and those who are unable to work; an adjustment to the minimum wage would have been more effective – simultaneously giving people more money to spend and reducing the government’s benefit payments. The minimum wage could also be a tool for addressing economic imbalances within the UK and between countries of Europe: its level should be set regionally, or even locally, to attract jobs to areas with a low cost of living.
Robert Skidelsky, in this week’s New Statesman, wrote: “I agree with Syriza: the way back to prosperity insolvency is not debt collection and austerity but debt relief and public investment. This is Europe’s choice.” This article, which was mostly available at eiranews.com, also reminded readers that some of Germany’s debt was forgiven after the Second World War and enabled its economy to recover. It cannot be denied that Greek politicians overspent, but the pain experienced by their population has been sufficient punishment to avert any temptation to repeat the mistake. Politicians now need to move forward in the best way for both Greece and for Europe as a whole – with some debt lightening and with less austerity.