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PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Washington.
At the recent G-8 meetings in Camp David in Maryland, we're told by the press there was
a vigorous debate: austerity versus cuts, cuts versus austerity, and Germany being sort
of the bad guy in all this because they continue to push austerity. Now, most of the press
reports didn't add to this that all of the governments at the G-8 had all in fact supported
austerity at one time or another. But some of them are seeing it ain't working. Well,
Fareed Zakaria rushed to Germany's defense in his show on CNN Sunday morning. He said
Germany's not the bad guy in all of this; the real problem is Greece doesn't want to
reform itself. I should mention, Fareed Zakaria is also an editor-at-large at Time magazine
and he hosts a regular Sunday morning show on CNN. And here's what he said.
FAREED ZAKARIA: Consider that Germany is being asked to take its taxpayers' money, in a democracy,
and use it to bail out a country like Greece, which is guilty of mismanagement, poor competitiveness,
and financial fraud, and it has said yes. In return for this, Germans are being called
Nazis in Greek newspapers.
JAY: A little further on, Zakaria says:
ZAKARIA: German leaders have said again and again that they are willing to bail out weak
euro zone countries. But they have asked for reform as a condition of that aid. The real
path to growth for countries like Greece and Italy is less austerity, to be sure, but more
reform, reform that opens up their labor markets, breaks protections, and liberalizes sectors
of their economies. These are politically hard to do, and certainly Greece has done
very little of it. . . . The only leverage Germany has with countries like Greece is
that it gets the money incrementally as it enacts reforms. Now, Greece might yet have
to default and quit the euro zone, and perhaps the European Union, but if it goes down this
path, Greece will find that the markets will refuse to lend it money at reasonable rates
unless it does pretty much the same things Germany is asking it to do anyway. Life without
Germany will mean a lot more austerity than life with Germany.
JAY: Now joining us to talk about Zakaria's show and his later interview in that show
with Mario Monti, the prime minister of Italy--joining us from London is John Weeks. John is a professor
emeritus at the University of London School of Oriental and African Studies, he's the
author of the book Capital, Exploitation and Economic Crisis, and he's the founder and
a contributor at JWeeks.org. Thanks for joining us, John.
JOHN WEEKS: Thank you for inviting me.
JAY: So let's start with Zakaria's defense of Germany and defense of necessary reforms.
What do you make of his comments?
WEEKS: Well, I think they're all nonsense, to use a technical term. I think that it's
a complete misrepresentation of the situation. It suggests that Germany has pursued a fiscally
sound policy for quite a long time while the other--particularly the Southern European
countries have been, you know, feckless and profligate and so on. And now what Germany
out of the kindness of its heart regrettably [incompr.] austerity against the countries
in the south. That is complete nonsense. It's a complete misrepresentation from beginning
to end.
JAY: Why?
WEEKS: Well, it's hard to know where to begin, but I'll try to begin with the big picture.
In the late 1990s, the social democratic government in Germany, the Social Democrats, saw that
actually all the European countries were growing rather slowly, but Germany was growing rather
slower than the others. The main reason it was growing rather slowly was because of complications
rising out of unification in 1990.
JAY: Yeah, just for people that don't know, unification means the bringing of East Germany
into Germany as a whole.
WEEKS: I forgot, yes, there'll be some of your listeners that weren't even alive when
that happened, some of your viewers. Yeah.
So the unification of East and West Germany and some of the policies taken by the German
government, which was a conservative government then, caused the economy to grow slowly. Okay?
Come the end of the '90s, the Social Democrat government comes up with a solution [incompr.]
growth, and the solution is what would be called in the economic--standard economic
literature beggar-thy-neighbor growth.
What you do is you make yourself more competitive compared to your opponents and--I mean, compared
to your trading partner, making them opponents. By making yourself more competitive, you export
more to them, but you import no more. So you begin to have a export-driven growth or -led
growth. And the other side of the coin from that is somebody has to have an import-led
growth. And so that is what happened.
In the year 2000, just as the policy was coming into operation, Germany actually had a slight
trade deficit with the rest of the European Union. And it also had a fiscal deficit--it
was spending more of the income [incompr.] came in. Seven years later, just before the
crisis arises, only seven years later, Germany had a surplus with the other members of the
European Union of almost €300 billion. So they went from a slight deficit of about €30
billion to a surplus of €300 billion.
JAY: And Germany becomes more competitive how?
WEEKS: It became competitive in a number of ways. One is that the trade unions agreed
with the Social Democratic government to hold a real wage freeze, so that the money wages
would rise at the same rate as inflation. This meant that they were rising well below
growth and productivity. So unit costs were falling. That's the first thing.
The second thing is that the government introduced an arrangement such that companies that exported
did not have to pay the sales tax or employment taxes--like, Social Security contribution
in the United States you would call it. [incompr.] have to pay those taxes on those things they
exported. So in effect this was a subsidy to exports.
Those two things together--the keeping wages flat and removing certain taxes--of course
made, in the short run, Germany's exports much more competitive. And in fact the turnaround
was astounding. Couldn't possibly--astoundingly quick. Couldn't possibly be explained by anything
other than temporary measures.
Now, maintaining that advantage has been partly achieved through higher rates of investment
in Germany and the other countries. But one of the reasons they have higher rates of investment
is because they were the country growing compared to the others that were stagnating.
JAY: Okay. But isn't Zakaria right, then, that if you jump to what Greece's situation
was, he says fraud and inefficiencies and lack of competitiveness and all of that. So
what do you make of, you know, his accusations of Greece and that Germany now is perfectly
reasonable asking for such reforms?
WEEKS: Well, of course, you know, the Greeks, they're just like the Italians. They like
to just sit around in cafes, they really don't want to work, and so on. Let's try to inject
a few facts into this discussion. First of all, the average German worker in the private
sector works 1,500 hours a year. That's less than in the U.S., 1,500. If you divide through
by the number of weeks, you can see that that's considerably less than 40 hours a week. The
average Greek worker in the private sector works over 2,000 hours of the year. So they
worked over 40 percent more than in Germany. Okay, so that's the first thing.
Now, what about the government? Were they corrupt? And were they profligate? There is
corruption in Greece. But the central problem in Greece of the public finances is that the
rich do not pay their taxes. The middle class and working class pay their taxes. The rich
do not pay their taxes in Greece, and there's a reason for that. The reason is that at the
end of the military dictatorship, the military ceded power to the social democrats of Greece
on the condition that no laws would be introduced which weakened, you might say, the economic
power of the upper classes. And that's what got us--partly what's got us to where we are
now.
JAY: What year was that, John? John, what year was that?
WEEKS: That would have been in the 1970s. So there's been basically no tax reform for
almost 30 years.
JAY: So the problem here is the reforms that Germany is calling for as a condition for
this so-called bailout is mostly going to be--the burden's going to be carried by ordinary
Greeks. You don't see a big demand--a little bit of demand for taxation, but not much.
It's not the brunt or focus of the attention. And that's where the money is, and one would
think that's who's to blame for all this.
WEEKS: What I'm saying is--I'm not saying that taxation is the solution. What I'm saying
is Greece got to a position in which it had a large fiscal deficit, because it had moderate
social expenditures, much lower than Germany's, of course, much lower in terms of--in percent
of GNP than in Germany in terms of health care and education and other things. And the
funding of it should have come from a taxation, from a progressive tax system. But in effect
the rich were evading taxes, and steps were not taken to prosecute them for it. Right?
Now we're at a stage where to a certain extent all of that becomes irrelevant, because the
reforms, the so-called reforms, which the Germans and the European Union, European Commission,
IMF won't [incompr.] those reforms have nothing to do with growth. This idea of opening the
labor market will make you grow faster, there is no empirical evidence to support that.
There are claims, but there is no consistent empirical evidence done by economists or sociologists
[incompr.] to establish that. It is as simple as an attack upon organized labor to try to
weaken their bargaining power so the Greek employers can force down wages even more than
they are now and can fire people more easily.
JAY: In the next part of our interview, we'll pick up on this idea, because in part two
of Zakaria's show, he interviews Italian Prime Minister Mario Monti, and Monti says almost
exactly what John Weeks just said--maybe not with the same intent, but it wasn't far. So
join us for the next part of our interview with John Weeks on The Real News Network.