DEBT, TROIKA AND THE EUROCRISIS

1. DEBT, TROIKA AND THE EUROCRISIS

3. The logic of EMU • ‘the importance of EMU is that national states, on their own initiative, will no longer be able to accommodate class conflict through credit expansion or currency devaluation. EMU, then, inscribes the neo-liberal policy of market freedom... through the creation of supranational institutional devices that check expansionary responses to labour conflict’ (Werner Bonefeld, 2002) • Countries cannot devalue (or print money) to boost their economies – ‘internal devaluation’ must be turned to instead

4. Current crisis

5. Debt • Balance of payments deficits in the peripherals financed by debt; devaluation not an option • Lax cross-border regulation of lending and low interest rate policy by ECB; also assumption that ECB would back all Eurozone debt equally • Debts socialised – protection of core country financial institutions

6. Forms of debt • Private (initially) in Spain and Ireland; 2007 – Irish public net debt-GDP ratio 12%, Spain’s 26%, Germany’s 50% • Public in Greece, but legitimate?

7. The Irish property price bubble • House prices quadrupled between 1996 and 2007 • Household debt: €57 billion in 2003, €157 billion in 2008; mortgage lending: €44 billion in 2003, €128 billion in 2008 • 6 main Irish banks borrowed €15 billion from abroad in 2003, figure had risen to €100 billion by 2007

8. Exposure • Early 2010, collective exposure of Eurozone banks to: • - Spain €727 billion • - Ireland €402 billion • - Greece €206 billion • Example of ECB policy towards Ireland in 2010

9. Using the crisis • Former Barack Obama chief of staff Rahm Emanuel: ‘You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before’ • ‘the drive for austerity was about using the crisis, not solving it’ (Paul Krugman)

10. Structural adjustment comes to Europe • Cut-backs, privatisation, etc. in ‘bail-out’ and other countries; introduction of ‘technocratic’ leaders (Greece and Italy) • Mario Draghi to the Italian government in 2011: need for ‘a comprehensive, radical and credible strategy of reforms, including the full liberalisation of local public services… through large-scale privatisations’ • ‘the dark irony is that an economic crisis that many proclaimed as the “death of neoliberalism” has instead been used to entrench neoliberalism’ (Zacune, 2013)

11. Attitudes to democracy • German chancellor Angela Merkel during the 2012 debates on the Fiscal Treaty: • ‘The debt brakes will be binding forever. Never will you be able to change them through a parliamentary majority’ • The new fiscal rules will have ‘eternal validity’ • ‘Europe would not function any more if it changed course after every election’

12. The EU versus the IMF • Ireland • ‘The European Rescue of the Washington Consensus? EU and IMF Lending to Central and Eastern European Countries’ (Lutz and Kranke, 2014)

13. Grounds for optimism • 2013 survey of public opinion in eight European countries finds those taking a favourable view of the EU fell from 60 per cent in 2012 to 45 per cent in 2013. Eurobarometer survey data for EU as a whole finds that only 33 per cent of respondents express trust in the EU, whereas 57 per cent say they distrust it, with the European Central Bank and the European Council the subjects of particular levels of distrust. Same data reveals that two thirds of European citizens do not believe that the EU takes their interests into account

14. Reflect on ‘which of the EU’s design faults and policies lead to the crisis, and which policies and institutions the EU would need to get out of it’ • ‘It’s not broken, it was built this way’ – the crisis stems directly from the design • Can we get out of it within EMU and EU?