by Mariana Γκλιάτη.
Enough has been said about the ineffectiveness of austerity with respect to debt sustainability and its dreadful consequences upon the people of Greece or Spain. It is now time to speak of the hidden victims of austerity: the Dutch and German taxpayers.
Once upon a time, there was no crisis. This is not to say that prosperity reigned in Europe. But it was the time that economies with a surplus found it beneficial to invest in state bonds of countries of the periphery dealing with big deficits and who were willing to pay high interest.
This all changed when the crisis hit the German banks. The goal then was immediate repatriation of their capital plus interest. This has had tremendous consequences on the economies of the periphery and led them to default. The Greek economy was the first one to fall.
In this hostile economic environment, it was impossible for states to pay off their debt. A big part of the loans had been spent in private and public buildings, the value of which had dropped due to the crisis. Selling them off would never pay off the debt. Besides, recession has led to the inability of the middle class to consume, which did not only affect the main source of indirect taxes, but it also had a domino effect on the rest of the economy.
The obvious solution here would be to boost economic growth, a path that led to the exit from the Great Depression of the 1930s. However, the solution that is pushed by Germany now is austerity upon austerity, which is counter-productive according to all economic analysts. So, why does Germany insist on the austerity policy?
Giannis Varoufakis, Professor of Economic Theory at the University of Athens, answers this question in his analysis by explaining the bright idea of the private bondholders, primarily German banks. They figured that under the present circumstances, it would be impossible for them to get their money back from the states, in the bonds of which they had invested. Thus, they decided that European taxpayers can pay them off instead! They put pressure on the German government to lead the way in giving loans to the countries of the periphery coming from taxpayers’ money. These loans are called ‘rescue packages’ but it is not at all clear who they’re going to rescue. In practice none of this money is forwarded to the Greek economy, for instance. It is all intended to support the state debt, thus it goes straight to the German banks. To put in simple words, the idea behind this is: in an economy that is falling apart, let’s save the loan shark (who is responsible for the crisis in the first place) so that he can keep lending us!
What is happening in fact is that the damages of the private creditors are shifted to the public sector of Europe and upon the shoulders of the European taxpayer. What is even worse is that European taxpayers are never going to see their money back, since austerity memoranda have become prerequisites for the rescue packages. A first year Economics student would be able to explain that austerity in times of crisis reduces the purchasing power of the public, causes unemployment, and leads to deeper recession. In other words, it does not raise money!
However, as Prof. Varoufakis suggests, this is the only way to convince the German or the Dutch Parliament to approve the loans: the taxpayers need to be assured that Greeks are paying for these loans with their ‘blood and sweat’.
It becomes obvious now that the situation is not as clear-cut as ‘Dutch taxpayers versus lazy Greeks’. In practice, Greeks do not benefit at all from these loans, while Dutch taxpayers have been tricked into saving the German banks.
One of the ways to break that vicious circle, Prof. Varoufakis suggest, is for the European Central Bank to print a few trillion Euros and instead of giving it to the banks, as it did last December, the money should be handed over to the European taxpayers whether in Germany or Greece, under the condition that they’ll pay off any debts they have towards the state or the banks.