Friday, 10 July 2015

On Greece, And How George Monbiot Is Confused Yet Again

In his latest Guardian column, the perpetually befuddled George Monbiot wants to tell us that Greece's current problems are actually caused by an extreme version of what he calls 'neoliberal market fundamentalism'.

"The Maastricht treaty, establishing the European Union and the euro, was built on a lethal delusion: a belief that the ECB could provide the only common economic governance that monetary union required. It arose from an extreme version of market fundamentalism: if inflation were kept low, its authors imagined, the magic of the markets would resolve all other social and economic problems, making politics redundant. Those sober, suited, serious people, who now pronounce themselves the only adults in the room, turn out to be demented utopian fantasists, votaries of a fanatical economic cult."

It's incredible how, when you only have a hammer in your mental toolbox every problem seems like a nail. But it's also interesting to see how to hard left extremists things slightly less extreme yet still very economically left can seem to them to be right wing - a bit like how warm water feels hot when your hand has just been in very cold water.

I am completely at a loss as to how George Monbiot can think us neo-liberals - you know we who argue for small state interference, open global trade, the celebration of national diversity, and a drastic reduction in bureaucracy, can be to blame for the present day big top-down interfering, globally restrictive, nationally homogenous, stuffily bureaucratic European superstate and the problems of some of its struggling nations.

Because George Monbiot thinks neoliberal free markets are the cause of most of the world's ills, and because Greece is currently going through one of those ills, he assumes that the former must be the cause of the latter. But it just isn't so.  

Let's tell things as they are - the problem with this European superstate is that it is devoid of the open free market qualities that many of its countries so badly need. The federal state of Europe is an overblown political project, showing not the slightest reason to think that monetary unity could make it a successful economic project. The Greek situation shows the result of numerous poor decisions, but also it shows the danger of a fanciful idea of a European superstate with a single currency. I wouldn't be surprised if the EU breaks down in the future - but until then, a few comments about Greece as things stand.

The Greek economy gave indications of going this way as far back as the 80s - in recent times it has been a country that doesn't focus on market-based wealth creation but more on wealth extraction through top down management. It's a great example of the failure of leftist economics - the focus on other people's money rather than small government and economic growth. A country's ability to generate growth is roughly commensurate with its ability to allow the market to facilitate that growth. That's why places like Greece, Portugal and Spain struggled after the crash and why England much less so. England has one huge advantage too - and that is, it has London.

If Greece could exit the Eurozone, revert back to the drachma (and a concomitant devaluation), there could be a slow climb. In real terms Greek wages and prices would sharply fall, and the Greek State would effectively be locked out of capital markets for a while, but if it learned how to create wealth it could then gradually price itself back into the global market. As things stand currently this looks unlikely.

By printing more of the drachma, this lowers the value of the currency in international markets, but it also makes Greek exports more competitive. Add to that the lowering of domestic interest rates, which then encourages domestic investment, and it can potentially make the servicing of their debts for Greek debtors more conducive too.

Alas, when you are locked in a shared monetary policy with the rest of Europe, this won't happen. The monetary policy of the European Central Bank is Germany-friendly, not Greece-friendly. It's Hobson's choice for the Greek people - massively increased debts, or Grexit and a depression that could last a long while longer. The IMF, which has a questionable record of international policy, has been loading Greece up to the waist with debts in exchange for austerity and huge tax increases, which only exacerbates things.

To recover in the long term, Greece needs an awful lot more of those things George Monbiot laments, not less of them. What Greece needs is not going to be likely under this current European superstate - its advocates have a lot resting on it working, and they don't want anything to spoil what they hope will be (but evidently won't be) an unspoiled legacy.