DILLI RAJ KHANAL
The humiliating defeat of almost all parties that have either championed or pursued harsh austerity measures, austerity only with added new growth compact demanded by the newly elected Socialist President of France and unrelenting stand by the radical left, a newly emerged decisive political force in Greece, for terminating harsh austerity conditions laid down in the bail outs have again heightened the crisis in Euro Zone countries threatening the exit of Greece from Euro including the danger of Euro’s collapse. The likely contagion effect of these uncertainties has already started making destabilizing impact on the global economy.
A big question that has gained ground at the moment is why, contrary to the claims, the austerities did not work or became so devastating in the first place. For this, the underlying presumptions or logics advocated or forced in the aegis of financial capitalism vis a vis actual situation has to be looked into.
The proponents of draconian austerity policies in the form of drastic budgetary cuts including employment, wage and other social security cuts argue that it enhances the positive environment to the industry and businesses by means of increased competitiveness added by unleash of more resources to the private sector. In parallel, most predominant policy route advanced or enforced amidst massive slashing of government capacity to invest is the policy of monetary easing and low or zero interest rate led cheap credit as a part of private sector led massive expansion in financial investment. Similarly, for unleash of resources or enhancement of investment capacity of very rich people, cuts in highest income tax rates are advocated or enforced.
Indeed, the stock market indices, commodity and bullion market prices and profitability of large banks or corporate houses prior to the recent elections in Greece indicate that they have surpassed the pre-financial crisis period of 2008 on the average. This evidently proves that such a course by contributing to augment financial capital accumulation enabled to derive profit massively. But, as opposed to the arguments, such a positive effect could not translate into enhancement of shared growth and employment. Contrarily, wherever recovery took place it has highly been fragile and crisis prone, more so due to perpetuation in real sector stagnation added by continued or enormous rise in unemployment.
In the countries like Greece, the impact of austerities has been more devastating and painful. The austerity measures imposed as a part of bail out additionally constrained by fiscal deficit limits were so large that in 2011 alone it was 11.1 percent of the GDP leading to pervasive negative impact on both growth and employment despite massive capital inflows through bail outs. Ironically, at the same time, the outflow of capital from Greece since 2010 has been much higher than the size of bail outs. Today this has magnified. This is one of the principle characters of today’s dominant economic system which has been rejected at the people’s level across Europe. The recent emphasis on austerity with new growth compact for Euro Zone countries by the newly elected French president during the election and thereafter including many others is the outcome of this. Despite such a trust amidst growing resentment of the working class, there are many complicated issues and policy challenges to deal with as they require drastic economic policy correction. However, as a mid-course amidst two extreme views, one demanding scraping of all conditions attached to the bail outs and other pleading to stick on the agreed austerities, how revival of growth without revisiting entire depression driven austerity program will take place is a mystery. Considering both theoretical and practical grounds, it will be almost impossible to accomplish both objectives simultaneously, more so in a given condition. As obvious, continuation of austerity program will lead to further contraction in the economy in absolute term added by dampening of even complementarities role of the public sector in the economy. This means, the entire net growth must come from the private sector. In this context, freezing or dampening of real wages as done by Germany is talked about. But in Germany enhancement of competitiveness and growth has been driven by many other factors including capital productivity. It should also not be forgotten that massive devaluation before Euro also created a strong basis. More importantly, the nature of capital and its movement today is primarily driven by speculative businesses and hence massive investment in infrastructure and other areas for revival of shared growth by the private sector in Euro Zone countries based on added emphasis will be far from enough. Despite new proposal recognizing the failures of today’s dominant global economic regime, it follows the appeasement approach driven primarily by safeguarding the interest of financial capital. More upheaval in the political spectrum in Europe and other countries seems imminently similar to Greece with the people’s target to such parties which have become the stooge of financial power beyond traditional division in the form of rightists and leftists.