Neoliberal economics, democracy and austerity

It is quite evident that neoliberal form of economics that we see today is clashing with democracy. An example are the events this summer in Greece. Despite the public voting for OXI in the referendum, the government went ahead with the bailout package that is just delaying the inevitable.

The mainstream media is propagating the idea that debtors must pay off what they owe, by moralising global finance markets under the cover of morality of every day life. What one should not forget when looking back at history is that countries have the right as sovereign nations to not pay back the debt or to reschedule their debt, unlike private individuals. It is not written anywhere that countries can use their sovereign powers to only to meet their obligations to financial markets, by increasing taxes or decreasing benefits for their citizens.

A democratic country’s first obligation is to their citizens. They can make laws to dissolve contracts, as any organisation that lends to these countries should know. Even under civil law, not everyone must pay back all their debts. Debtors can file for bankruptcy and make a fresh start. The United States is a great example of that where you are given a second chance, and their is no shame in that, even from the view of people who admire the capitalist system in the United States.

What we have right now in the European Union is the ECB issues bonds to countries. The financial markets buy this from the countries at 96% of their nominal value and then sell it back to the ECB for a guaranteed 96.5%. A guaranteed profit for that industry with low risk.

On a separate note, after reading a chapter of Varoufakis’s Global Minotaur book, that the euro seems unsustainable, and is forcing our Southern European neighbours similar problems to when countries were on the gold standard in the early part 20th century. The euro is cheap relative to what a Deutsch-mark would be. This benefits Germany. However, the euro is too expensive for Greece, Spain and Italy. The have no freedom to devalue their currencies. Devaluing would benefit their economies as their exports would be more competitive. This would help revive their economies. What do the troika expect? That citizens of Greece, Italy and Spain will be able to maintain a budget surplus of 4% for the next 25 years and repay all of their debts? Something has to give.

References:

  1. Varoufakis, Y., The Global Minotaur, Zed Books, 2015
  2. Graeber, D., Debt: The First 5000 Years, Melville House, 2012
  3. Flassbeck, H., & Lapavitsas, C., Against the Troika: Crisis and Austerity in the Eurozone, Verso, 2015
  4. Streeck, W., Buying Time: The Delayed Crisis of Democratic Capitalism, Verso, 2014.
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