Essay on the Greek Situation Neoliberalism and European Situation

Essay on the Greek Situation Neoliberalism and European Situation

The goal of this work is to explain from an X-ray performance of the euro and the Greek economy and the social situation existing in this country.
It should be added that in this study economic and social concepts were mixed, and it will be a text of political economy. This name is important to the economy, because we must keep in mind that economics is a social science that is intertwined with other disciplines such as sociology, biology, psychology, etc. And without them, and their interaction it does not make sense to talk about economy.

This short introduction is helpful to us given that economy is conceived as an exact science and there is nothing further from reality. We are seeing, both in Greece and Spain, austerity measures with a clear ideological logic that responds to particular economic interests. In turn, there are different measures to overcome this crisis, rooted in the logic of the capitalist system and the changes in the in the 80's. We will explain how the changes in the ‘80s following the collapse of Bretton Woods and the mode of production from the golden age of capitalism lead inexorably to these paths. So the processes of technological change, the neoliberal paradigm, if you can call paradigm, the new capital-labor relations, will be keys to understand the new workings of capitalism. After this short introduction, I start with the first point.

Changes in the Capitalist System
The importance of the changes in capitalism is the key to understand the current crisis, from an economical perspective we will go shelling the elements and explaining their possible economic reasons. I will in general avoid economical data because sometimes they are complicated, even though they are easily verifiable. We should know, first, how the current capitalism works. As we studied in class, with the M-D-M model, capitalism works for the pursuit of profit through the reproduction of capital, it means the search for surplus in the form of money now. Formerly in the form of cereal, or any other measure of value. In this process of reproduction of capital it’s is necessary to understand several variables.

First, the capital-labor ratio, dialectic relation, it is essential to understand to know how to divide the surplus, if it occurs, and how this division will base the next episode of reproduction of capital. So the delicate balance between these two variables and their evolution will help us to understand the evolution of capitalism.
Second, we have the relationship existing between the mode of production and technology. That is, how society is organized to produce. This may be a harmless aspect, but it is very important because it will give us a picture of how society is.
Third, we must know how to evolve the rate of profit. That is, as the benefits evolve. That certainly is the engine of capitalism. This will make us understand the phase of financialization of the economy; it means the casino’s economic boom, in response to a period of stagnation in the rate of profit.

In other words, the market saturation will search for other essential areas of investment and profitability for the survival of capitalism. Explained these elements, we can get into the changes in capitalism in the eighties. As we have seen in class, the changes in such a period, has a systemic character. It is a system mode change.The eighties witnessed several phenomena that determine the economical way in which we live. Changes in capital-labor relations in the international monetary system, the depletion of a way of capitalism and the beginning of the phenomenon of disembeeding.

During this period, from the 70's, it was experienced a decrease in the rate of profit associated with the depletion of this production model. The declining rate of profit associated with an increase in inflation by the supply side, due to rising oil prices for political reasons, they both wrecked that way of the capitalist system. During the seventies waves of protests and clearly looming horizon of social struggles determined the direction of change and / or necessary revolution at that time. These struggles have threatened the existing power system of the time, so much so that U.S. interest rates artificially rose to 20 percent, a clear interest to undermine the middle and lower classes in their desire for reform for them.

During this time, as clearly as you can see is the depletion of the Bretton Woods monetary system, with the output of the dollar, it means the dollar to gold. And exhaustion, mentioned above, the profitability of that system of accumulation. Easily observable empirically. Faced with this situation, the capitalist powers chose, as now, by a headlong rush. First, they had to defeat the leftist emancipator social movements that plagued the system. For this, the premises were clear. First, interest rate rises to freeze economic activity and force unemployed. Second, dismantling the welfare state and much of the aid workers, in order to create an industrial reserve army to discipline the workforce, the workers. An example can be seen in the battle between Ms. Thatcher and the British miners' union. And third, the adoption of another model therefore combined with other rules and macroeconomic policies. It began the era of the monetarist school of Chicago.

Neoliberalism and Social Impacts
The new changes resulting from the crisis period of the eighties can be summarized in an expression that is: The great leap in the dark.
This expression attempts to summarize the economic and social disaster that produced the new economic policies based on assumptions about theology, and their impacts we are experiencing now.These new policies are based and based on the ardent belief in free markets and individual freedom as an absolute and not relative concept. So the solution to every economic and social problem go through the simplicity of its crudest everything’s liberalization. This base was and is behind any economic policy since the eighties. So, once the revolution triumphed monetarist policies had flooded the world’s economic powers. These policies, which I’ve been studying for five years, are summarized as:

• monetary policy oriented to control inflation, which is a very partial analysis of the role of monetary policy, without taking into account the impact on economic activity and the influence of monetary policy in the distribution of wealth.

• Privatization, as a foundation for economic improvement. It’s not due to develop this point because nowadays private companies are not necessarily better performing than the public ones.

• Attack on trade union rights, it means separate the wages from productivity, here started the process of disembeding and the beginning of share of wages’ fall in the distribution of wealth.

• Financial Deregulation, it means liberalization of financial activity with the assumptions of rationality (in the wake of this crisis have proven false). This is crucial because here it comes the big leap into the dark.

• Start of large-scale creation of fictitious money. Moving from model M-D-M to D-D '. Beginning of the great Ponzi scheme that is now our economy.

As this is a purely economistic text, I will avoid explaining the whole processes and consequences of the above concept, and I will focus on the results, adding some comments on the economic and social implications of these points. The economic results of these reforms have been the growing disparity in wealth distribution between capital and labor, with its consequences of the lack of aggregate demand. This can be clearly seen in the Greece case, with the following chart.

And the same pattern applies for all of Europe and America. The share of wages in income has been declining.The implications of these trends are the stagnation of the purchasing power of the popular classes, which normally sell labor in the market and live just on their salaries. Therefore, if we combine this trends within the results of changes in the eighties and the phenomena of the MDM model over D-D ', we came to the conclusion that economic activity has been running normal appearance due to the explosion of financial money and its impact on the sustainability of economic activity. That is, the growing inequality and stagnant real wages have been softened or drugged by increasing debt as an engine of growth. Without debt it would not have had grown. This we see clearly in household debt as a proportion of GDP in countries like USA, Spain or Greece.

The most important consequence of this whole operation is that they have been undermining the traditional foundations of accumulation, and have moved to a fictitious accumulation of debt that has been the fuel of capitalism. An example is illuminating, for every dollar that is exchanged in international markets for buying and selling goods, exchanges speculative $ 99. Proportion of 99 to 1. Behind this prosperity’s appearance sponsored by the rise of debt as a motor, the actual conditions of life have been diminishing to the same levels of 40 years ago. And these conditions have been obvious when the crisis erupted in 2007. The social impact of this crisis has been the social decline and the beginning of another social battle to divide the ravages of the crisis and to see what guidance is given at the exit of crisis. The next point we will go deeper the EU's economic performance and their involvement in the explanation of the Greek crisis.

European Union, a Dead End?
The current social and economic situation of Europe in the euro contains certain characteristics that increase the economic situation of member countries, and in this context we must analyze the case of Greece, which in turn would be suitable -with nuances- to explain the economical behaviors of the rest of the bad called PIGS.

Neoliberal Europe
The construction of Europe today is almost the dream of the neoliberal model. The ongoing financial liberalization, capital mobility and the subject of public deficits and the inability to help the monetary and fiscal policies make the Euro’s Europe the culmination of the neoliberal model.nCurrently in Europe, states must have a strict budgetary orthodoxy that in times of crisis is wrong. Thus to be part of the euro system, for different countries with different levels of productivity, means that in cases of shocks they can only fit one another by the wages.

That is the suffering and the decline of the working classes and the result of a falling aggregate demand. But beyond that, we see that the explanation of the plight of the European project has its roots in the European economic model and the imbalances they create. We can analyze that the current situation in the European economic model creates inequities that are difficult to overcome without a European reform on solidarity and progress in rebalancing trade balances. We can say that the current problems of the PIGS are based primarily on strong country policies in the euro area, these are Germany and France. Since the nineties these two countries, Germany especially, began to undertake an export-oriented policy, which it means reducing real wages and labor costs and thus reducing their aggregate demand for an export model. And this was why Oskar Lafointe left the Schroeder government.

This economic structure leads to better compete against the peripheral countries, that without the help of their own currencies (devaluation) were experiencing a worsening of their trade balances in favor of Germany. In addition to this, the surpluses earned by the German banking were sent to finance the purchase of German goods by the PIGS. So what is behind the great debt that the PIGS have, and especially Greece, is a huge debt to German banks. For example, Greece's private debt was mostly converted into public one, and major creditors are Germany and France with 71% of the total. Then the real problem is that the bailouts that are being undertaken, are truly private banking bailouts German and French, and it’s not really a bailout of Greece.

Rescue Measures to Greece, the Paradox of Austerity
Looking at this economic landscape, the forces that dominate the European euro (not forgetting that they are liberal), rather than admit their failures, still think that it’s the reality that fails, not the models.Therefore, with a misdiagnosis of the situation it will be bad recipes, as they are putting on the table. Diagnosed that the main problem in Greece is their debt level, which is really high, and for Greece to survive has to lower its debt level. And at this point, as always, as in Spain, the recipes are always the same. Those already experienced in Latin America in the eighties. These are the policies of adjustment.

These measures are aimed in reality to dismantling the welfare state in favor of privatization policies, it means balance transfer price of social wealth to private wealth. People always talk about reducing the deficit and public debt by lowering costs and not through rising income. As a progressive tax reform or combating tax fraud, in the case of Greece is 10% of GDP. People are indoctrinated to give sacrifices to the markets, so that they forgive us for our excesses. And here's a blunder, easily observable empirically.

The Paradox of Austerity
The economic rationality behind the austerity programs is that a decline in the debt level will allow private companies to obtain credit to invest and recover the economy. But the problem right now is not the debt, is the lack of demand and the European and global trade imbalances. That is, the key point is inequality. We have seen in the Greek case, that since the implementation of the troika, although the adjustment programs to reduce public debt, this has not diminished but increased. 130% to 150% of GDP. This is because in time of lack of demand, in order to further reduce demand, public demand here, brings a drop in economic activity and the inability to generate income to pay the debt. Therefore, and to be clear at this time in Europe they do not talk about solutions to the economic crisis, they are taking about how to rescue those who have caused this crisis regardless of the people. Here is the reason for outrage of the masses, which should be rising to change the orientation of policies.

J.M. Keynes wrote in his book "Economic Consequences of Peace" (1919) that the conditions imposed on Germany after World War I would bring disastrous consequences for Germany and Europe, and it was. Therefore, following this example, the alternatives to avoid the social disaster that passes quickly headed inexorably reshaping Europe Euro with compensation mechanism and reduction of differences in trade balances, rising domestic demand in Germany, and coordinate a real fiscal stimulus program aimed at creating the European Economic social Work. That is needed economic solidarity.

In turn, it is essential to eliminate tax havens and tax evasion. The situation of the Greek population of the Greek people, it is our situation. We are speaking about a Europe built for capital and not for the people. Therefore, the protests that are happening in Greece are an essential step to recover spaces of power to change economic policies that reduce economic inequalities, which are the basis of this economic crisis.

And therefore, all social mobilizations at the moment must be intended to create the social basis for changing the direction of Europe and the world, have to some extent to decolonize our minds of so many lies of neoliberalism. And start to change our minds. Social movements do not have to fight for what we had in the past, that is not the economic system we had in the past but for a new economic system based on equality, respect for the environment and sustainability.

As an economist, I can say unequivocally far ahead about 10 years of suffering and pain, but there are sufficient alternatives to carry them out. The utopia is yours, ours is complicated. The utopia is to keep thinking we can live happily in a system that is destroying the foundations of social and environmental sustainability. For example, Norway enjoys a high sustained well in large part on its natural resources, such as gas and oil. This will end, and we must begin to change.

• Vicenç Navarro, Neoliberalism and Welfare State (Barcelona: Ariel 2003)
• J. B. Foster y F. Magdoff, “The Great Financial Crisis: Causes and consecuences“ (México: S.L. FONDO DE CULTURA ECONOMICA DE ESPAÑA 2009)
• 25 years of neoliberalisms (Barcelona: Hacer 2008)
• Juan Torres López, ¿Por qué se cayó todo y no se hundió nada? (Madrid: Sequitor 2010)
• Manual de economía critica, Crítica a la economía ortodoxa (Universitat autónoma de Barcelona 2004)