In his book The Euro, Stiglitz is silently quite accusing towards the Troika, the trinity of the European Commission, the IMF and the European Central Bank, particularly in the way they behaved – and are behaving – towards Greece. There are a few points that need far more public attention. The basics are that the current policies carrying the Euro do not only reveal lack of insight in the cutting edge theories of economy and the way to save European countries in crisis, but also that there have been instants where the group deliberately chose for the benefit of the wealthy few at the cost of an entire country because of, quote, ‘hidden agendas’.
Fixed exchange rate
Stiglitz starts by showing how, probably not with bad intentions, the arrival of the Euro has caused a large part of the current problems in Europe, notably of those Greece. The moment the dollar dropped and houses lost their value in 2008, Greece, as well as the rest of the world, could not keep up and started losing jobs. To sustain the level of prosperity, it had to import more in compensation for the loss inside the country. Had the drachma still been in place, it would have lost much of its value at that moment. This would have attracted more tourists (they could have come cheaper) and made all export easier, since it would be cheaper for the surrounding countries to buy Greek products. That would have been a boost for the economy, causing the country to climb back up at its own pace. But since the currency of Greece was the Euro, its value did not drop, and Greece could not cope.
Narrow focus on inflation
Meanwhile, the European Central Bank was doing what it was ordered to do: whatever it could to keep the inflation at or nearing 2%. One of the measures it used was to keep interests on loans high. This would generate money for the banks of Europe. But for Greece, high interests meant that it became even harder to lend money, money the country desperately needed to fix some of its problems, particularly solving unemployment and strengthening the safety nets for those people who were hit by the crisis.
The power of the banks
Since Greece still needed money and the ECB was the only one who wanted to borrow it to them, the Troika could basically ask whatever it wished in return. In such a case, one would expect the Troika to create plans that would help the country climb back up. What it did, however, was quite the opposite: create plans that would help it pay its debt at the cost of its people, and, Stiglitz is unambiguous on this, in the favour of Germany. By forcing the country to decrease its governments’ spending on schools, hospitals and pensions, for example. That, too, meant fewer jobs. But it also meant less power for the local authorities, versus more power for the private companies that still existed.
The situation aggravated
What followed was a downward spiral. Young, talented people were forced to leave the country and thus were no longer able to sustain its remaining capital. Investors started to worry that their money may never be paid back, and started to withdraw. Less and less money was available and more and more taxes had to be paid. Meanwhile, the German owned airport of Athens was exempted from tax payment, as are many other companies in Greece and the rest of Europe.
Several destructive decisions
Stiglitz points to a few events in the negotiations between what was left of the Greek government and the Troika that are, to say the least, very strange. At some point, Papandreou proposed structural reforms that would take a large part of the power from the Greek oligarchs away – thus much of the corruption – and make them pay more tax. The Troika rejected these reforms and instead enforced a set of programs that compromised the power of the people even further. He raises the question which groups were served here showing it were the rich all the time. Something the IMF admitted to later, by the way.
The current program allows easier targets for 2015-2017, but if Greece complies with the agreement’s primary surplus target for 2018, no matter how faithfully it fulfills the structural reforms, no matter how succesful it is in raising revenues or cutting back on pensions, no matter how many are left to die in underfinanced hospitals, the depression will continue (p. 188).
Stiglitz points out that while the Euro and the Troika threw Greece deeper into recession, it was not impossible to provide adequate measures that would bring the country back on track with only some minor losses. The Troika failed to do so: its actions have been counterproductive. Stiglitz argues that reforms are necessary as quickly as possible, either by moving to further integration by regulations that are more tailored to countries and focussed on employment, or by stepping back and splitting up the Eurozone.
Stiglitz shows it cannot go on like this. The severe impacts on Greece have been exemplary for what’s in store for Europe, if the institutions do not change. By decreasing the power of all governments, the Troika, knowingly or not, is performing a slow coup, abolishing the very essence of the union. The current institutions let the markets roam free, almost to become new sources of natural disaster. He thinks going on in this way will backfire on Europe economically, if not just politically through movements such as the Brexit.
While I still have much confidence in the future of the European continent, Stiglitz has opened my eyes to the severity of what is going on. This is not what the EU was meant for, and it needs to change. Stiglitz proposes a few good ideas for serious reform, what we need is momentum to make those reality. Perhaps the populists will help with that.