A Tale of Two Crises - Myths of the Crisis Part II

While news reports indicate that Greece’s bankruptcy is becoming inevitably, and while the value of the euro is once again reaching a low point, let us think back to the good old days, when you could still buy £10 with €10, and when analysts still expected the euro to become the new reserve currency. That was three and a half years ago. Europe was in a deep recession, but acted determinedly, providing €3.63 trillion for potential bank bail-outs. Shortly afterwards the Greek tragedy began to unfold, and the financial crisis turned into the euro crisis. A myth erupted, telling a tale of two crises that have nothing to do with one another. This myth served the purpose of conveying the impression that there was no fault of responsibility with the banks or the economic system itself. If one claims, that the desolate condition of South European budgets is due to corruption and general laziness, the banking system was off the hook, and core-Europe could continue to rely on its exports – for a while, anyway.

Greek public debt 

Empirically the situation looks very differently. While Greece’s budget public debt level constantly remained at the level of about 100% from 2002 to 2008, it began to skyrocket in 2009, having now reached 170%. Until 2007, Greece’s economy grewby 3.5-4.0% every year, and only with the recession during the financial crisis the Greek debt level rose. On top of that, Greece had to support its own banks with huge rescue packages. The second EFSF-candidate was Ireland, the Member State with the highest annual growth rates; the role model of an economic boom caused by European integration. Particularly in Ireland disastrous budget deficits were caused by the nationalisation of Irish banks, for whose decadent practices the state finally had to pay. Spain does not form an exception. Its banking sector still hasn’t recovered from the turmoil of the financial crisis, which was visibly demonstrated by the recent EU/IMF rescue package for Spanish banks. There is no doubt about the obvious link between the euro crisis and the financial crisis, but media and governments still pretend as though the true culprits aren’t the banks, but the lazy South Europeans who sleep until 11am while the German taxpayers are plodding for Europe.

The crisis that is haunting Europe and the world is nothing other than a systemic crisis of capitalism and its institutions. As we described in our last post, even the foundation of our economic structures is prone to crises, and we have to stop pretending as though it is the Greeks or the Germans who are to blame for everything. The UK refuses to introduce a financial transaction tax assuming that the financial ‘industry’ has nothing to do with the current global debt crisis. The recognition of the link between the euro crisis and the financial crisis is thus an essential step towards taming a reckless banking system. The regulation of banks is a cornerstone in the fight against the crisis, which has caused mostly the innocent to bring sacrifices. Debunking myths that deceive the public, inveigle politicians and obfuscate the facts is an important task of the blogging community, if it wants to contribute to preventing more harm from occurring.

Harald Köpping

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