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PAUL JAY: Welcome to The Real News Network. I'm Paul Jay, coming to you from Baltimore.
The Financial Times has a piece in it today. The writer calls the euro crisis a spiral
of doom, and he suggests more some kind of cohesive plan or strategy about European banks.
In fact, the debate about what to do about the eurozone swings anywhere from get out
of it, which you hear most prominently in Greece, to, on the other end of the spectrum,
some sort of United States of Europe, a virtual full integration of the various national states.
And then on that spectrum you have lots of proposals in between.
Now joining us to talk about the debate is Malcolm Sawyer. He's a professor of economics
at the University of Leeds in U.K. He's managing editor of International Review of Applied
Economics. He's currently working on a project on financialization, economy, society, and
sustainable development. And he's coming to us today from Leeds. Thanks for joining us,
Malcolm.
MALCOLM SAWYER: Yes. My pleasure. Good afternoon.
JAY: So what is your take on all of this? You know, on the sort of even progressive
side, you know, you could say left of center and wherever, there the debate seems to be
raging just as furiously whether there should be more centralization in Europe or should—less,
and should various countries get out. What's your take?
SAWYER: Well, I think there are a number of sort of separate questions involved. If we
take the issue to do with the banking union, what we have currently is a set of national
banks operating on national banking systems, to some degree with their own regulation—it's
not always clear who has responsibility for them, for example, who would be undertaking
deposit insurance or who would be bailing them out if that were the case. And the proposals,
really, in terms of banking union are to move that to the European level, so that there's
some sort of degree of integrated financial system, in the sense that there would be a
common set of regulations, that who was responsible for deposit insurance, who was responsible
for any bailout, and so on will become much clearer than it is currently.
So I think a second set of questions is, of course, how would that system actually be
operated, and would it be operated in a way which was conducive to economic prosperity.
And I think the problem at the moment is that much of the debate is over forming some kind
of union, and not enough attention is being paid to how that union would in practice operate
and whether it would operate in the interests of workers and the interests of economic prosperity.
JAY: Yeah, I mean, isn't that the real question? I mean, one can imagine all kinds of ways
to restructure Europe, but you've got to first ask and answer the question, restructure Europe
for whom, because, you know, people on the left are saying that, you know, the more centralization
you have, what you're really doing is handing more power to the financial elites of Europe,
and Germany in particular, and you can't remove the political context of who's got power right
now in Europe when you think about what restructuring means.
SAWYER: Yes, I think that's right. And also alongside, for example, the suggestions over
a fiscal union or some sort of political union goes along suggestions of what is usually
called structural reform. Now, structural reform in practice would mean adoption of
a much more neoliberal agenda. So it is also seeking to impose a particular set of policies
on countries under this heading of structural reform.
Okay. If we take the example of the proposals, the idea of some sort of fiscal union, whilst
I think from the way in which a single currency would operate, some form of fiscal union,
some form of fiscal transfer taking place is rather desirable, on the other hand, one
would have to ask the question, how would this fiscal union be operated? Would it in
effect just impose pre-Keynesian ideas and say, well, the budget has to be balanced come
what may? And is this a real way of imposing austerity through another route? So there's
no purpose, really, constructing a fiscal union unless that fiscal union is operated
in a way which would stimulate economic activity and indeed have a large degree of transfers
of resources from the richer countries to the poorer countries.
JAY: So I guess there's sort of short-term and longer-term way of looking at this. In
terms of the shortest term, with some of the countries in such severe crisis, you know,
I guess Greece being in the most serious situation, what do you think people should be demanding
vis-à-vis the eurozone? Like, for example, in Greece the debate's hot and heavy weather
to stay in or not. You know, some people are saying you can renegotiate the whole package
and all the rest and not have such austerity and still stay in the eurozone. And other
people are saying that's naive; if you really want to make the kind of reforms you're talking
about, you can't do it within the eurozone. What's your take on this debate?
SAWYER: Well, I think if one was coming at it from a sort of left perspective and the
sort of economic reforms that one would want to introduce in Greece, staying within the
euro will make that more difficult, in that what is being imposed on Greece through the
memorandum of understanding is not only fiscal austerity but a whole set of measures of privatization,
liberalization, rejection of the minimum wage, and so forth.
But I think also, particularly the case of Greece, but in a number of other countries
as well, in effect one of the major problems they face is that they have a very severe
current account deficit, they have a very severe balance of payments problem. And being
within a single currency means that they cannot devalue, that they therefore will find it
very difficult, if not impossible, to stimulate the economy themselves through increased exports
and so forth, so that they are rather stuck. So what I think a country like Greece requires
is a guarantee of the funding of their current account deficit whilst they restructure their
economy, but restructuring it along quite different directions to that which would be
envisaged by the troika to the European Union.
JAY: Well, you've written that the current bailout policies are essentially like sticking
a bit of plaster on a crack that's bound to crack open again. So if that's the case, what
do you think should be done?
SAWYER: It's very difficult to see what the sort of way forward is. I think there firstly
has to be, as it were, a recognition that the way in which the Economic and Monetary
Union was constructed had what I've elsewhere called design faults. It was really badly
designed, and so it doesn't operate in a very conducive way.
That is overlaid with the attempts at various stages to impose fiscal austerity, and now
fiscal austerity currently is having the effects of, obviously, creating recession, but at
the same time not really going any way to reducing the budget deficit. So at a very
general level, I would see that one way of proceeding has to be, ultimately, a recognition
that the Economic and Monetary Union is poorly constructed and that there has to be a quite
different set of policy arrangements for the Economic and Monetary Union. In one direction,
I would see that as to adopt Keynesian policies of the use of budget, fiscal, monetary policy
to stimulate demand; in another direction, to reconstruct economies along lines which
ultimately function better, not to impose neoliberal agendas on the countries concerned.
JAY: And if you look at the real politics at the moment, it seems like even with, you
know, the change in president of France—but still the austerity hawks still seem to be
holding most of the reins of power, even if some of the public discourse has sort of moved,
questioning whether there's been any success, austerity. I think you wrote in one of your
pieces that there's not any examples of austerity actually giving rise to growth. And we hear
that even from Mario Monti in Italy, you know, where he said on—in a recent interview he
said, you know, we've done everything you've said, but where's the growth? You know, we've
done the financial discipline, but there's no growth happening. But that doesn't seem
to be changing the weight of where things are headed. So, given that, assuming there
is no big change in direction in Europe, how dangerous a moment are we, in terms of the
global economy?
SAWYER: I think we're in a considerably dangerous position. There still is the possibilities
of collapse of various parts of the banking system, there's still the possibilities of
countries like Greece being unable to fund their deficit and therefore having to go for
yet more austerity.
But more generally it's going to involve the European countries in slow growth, if any
growth at all, a long period of austerity for most countries, for high levels of unemployment.
People are now beginning to talk about no or little growth the next ten years type of
scenario, so that within Europe I think there are considerable dangers of these sort of
further crises and, at best, a long period of austerity.
How much it will affect the rest of the world I find difficult to judge, because the European
Union is fairly close to a closed economy. It doesn't do a great—in some sense it doesn't
do a great deal of trade outside of its borders. About 10, 15 percent of its GDP is accounted
for by exports, so that the impact on the rest of the world may be not as great as one
might expect. But within Europe I think there are very considerable dangers.
JAY: Well, the danger people have suggested is that it is not so much the direct loss
of demand because of European recession, but the problem of either a sovereign default
or a major banking default, being what they keep calling a Lehman type event triggering
panic in the financial markets, and that leading to a deeper crisis. I mean, is that really
possible? Or is there simply enough money in Europe that if they have to, they can keep
throwing money at it just to not go over the brink?
SAWYER: Well, I think in one sense there's enough money, for example, to fund the Greek
budget deficit or to fund any Spanish deficit or whatever it might be, because in a sense
when you're short of full employment (and clearly Europe is well short of full employment),
if you can stimulate demand, that in turn will generate the funds in order to provide
the means by which you can repay the debt, so that it is not really a matter of a shortage
of money [incompr.] also in the case of Europe, and many other countries as well, of course,
there isn't a shortage of resources. There's plenty of resources, plenty of people looking
for work that could be put to good use and to be employed. So it's not a real lack of
money that—from a Keynesian point of view, if investment and government demand goes up,
that will stimulate the economy, that will produce more savings, and that will provide
the means, in effect, to fund that investment and government spending.
JAY: And what do you make of the argument we're hearing from some of the left that a
lot of what's happening here in terms of the policy response to the crisis is that some
of the elites in Europe want to take advantage of the crisis and sort of break the back of
the European working class to the welfare state, that this is a good opportunity to
kind of reshape what Europe is?
SAWYER: I think there are certainly elements of that, not so much looking at Europe at
the moment, but they're looking at the case of the—in the U.K., then you do see quite
strong elements of the right being able to use this as a way of saying, well, look, the
government doesn't have money to continue with welfare payment, so we've got to cut
back on welfare payments; all this, the causes of unemployment, are because the labor markets
are not flexible enough, so we need policies in that direction. So I think there is a sense
in which particularly the neoliberals and those in government are using this as a kind
of front to be able to implement policies which would not otherwise see the light of
day.
JAY: Alright. Thanks very much for joining us, Malcolm.
SAWYER: Okay. Thanks.
JAY: And thank you for joining us on The Real News Network.
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