Euro Crisis and Debt in Europe
From the Pocket Guide on EU Crisis
October 2011, Transnational Institute (TNI), Amsterdam:
The economic crisis that has shaken the world may have started in Wall Street but it has been made much worse by the actions of both the European institutions and European member states.
Much of the so-called debt crisis was caused not by states spending too much, but because they bailed out the banks and speculators.
EU government debt had actually fallen from 72% of GDP in 1999 to 67% in 2007. It rose rapidly after they bailed out the banks in 2008.
Ireland’s bank bailout cost them 30% of their national output (GDP) and pushed debts to record levels.
By blaming the crisis on government spending, politicians and bankers argued that the only solution was to cut public spending, but this has actually worsened the debt crisis.
Austerity measures have led growth to collapse across the EU. In Greece, GDP fell by 7.3% in the second quarter of 2011. Austerity has reduced governments’ capacity to pay back spiraling debts, leading to even higher debts. And, as speculators encouraged doubts on certain countries’ abilities to pay, the rates of interest soared – as happened to Greece, Ireland and Portugal – making the debts completely unaffordable.
EUROPEAN BANKS: Bailouts*
Bradford & Bingley 24 billion
Royal Bank Scotland 52,5 billion
Lloyds TSB 23,5 billion
Northern Rock 26,3 billion
Commerzbank 9,8 billion
Fortis 11,2 billion
Hypo Real Estate 52 billion
BayernLB 9,3 billion
Dexia 10,4 billion
*These are partial figures from the initial 2008/2009 bailouts and do not include the more than €210 billion Euros lent by the US Federal Reserve to prop up European banks.
The European Union, more than 3 years after the crisis, still has not re-regulated the banks!
No restrictions have been imposed on the size of banks. Little attempt has been made to separate high street retail banking from investment banking – which exposed ordinary people to the enormous risks taken by gambling investors. Prohibitions on the speculative trading instruments that caused the crisis in the first place are not yet in place or agreed. Finally, watered-down measures that will force banks to lower their borrowing and increase capital reserves will not be in place until 2018!
Unicef has warned of the “irreversible impacts” of wage cuts,
tax increases, benefit reductions and reductions in subsidies
that will bear most heavily on the most vulnerable in low-income
nations – particularly children.
Unemployment in Greece is approaching 900,000 and is projected to exceed 1.2 million, in a population of 11 million.
In Spain, youth unemployment is running at more than 40%!
These are figures reminiscent of the Great Depression of the 1930s.
“The social implications in Greece have been catastrophic.
Entire communities have been devastated by unemployment, losing the means to live as well as the norms, customs and respect of regular work”. – Costas Lapavitsas, SOAS/ Research for Money and Finance.
As austerity cuts swept Europe, the numbers of the wealthy in Europe with more than $1 million in cash actually rose in 2010 by 7.2% to 3.1 million people.
Together they are worth US$10.2 trillion.
The five biggest banks in Europe made profits of €28 billion in 2010.
There are 15,000 professional lobbyists in Brussels, the vast majority of them representing big business.
“Today only the foolhardy would dismiss a movement reflecting the anger and frustration of ordinary citizens from all walks of life around the world … the fundamental call for a fairer distribution of wealth cannot be ignored. The consequence [of the crisis] has been growing inequality, rising poverty and sacrifice by those least able to bear it – all of which are failing to deliver economic growth. … The cry for change is one that must be heeded.” – Financial Times, Editorial, 16 October 2011.
European Union’s answers to the problem?
In the UK, 490,000 public sector jobs are being cut; in Ireland, wages for low paid workers have been reduced; in Lithuania the government plans to cut public spending by 30%. The EU is planning to impose requirements by 2013 that means that no European member state countries can have a budget deficit of more than 3% of GDP or a public debt of more than 60% of GDP which will mean even more austerity.
“The European Commission’s new economic governance plans … go further than a fresh call for austerity: it is a recipe for much deeper liberalisation of the European economy than has yet been seen.” – Leigh Phillips, EU Observer.
More privatisation of public services.
Greece is selling off its railways, postal and water services; Portugal is privatising 17 enterprises; Spain is selling off state assets such as airports and the lottery.
“Thanks to this legislation (recent EU economic governance ‘6-pack’ rules), elected officials are dispossessed by appointed, non-accountable ones of their right to draw up their own budgets. Most Europeans have not the slightest inkling that any change has taken place, much less a savage attack on their governments’ capacity to govern.” – Susan George, President of the Transnational Institute, author of “Whose Crisis, Whose Future?” (2010).
Without any national public and parliamentary debate, the European Parliament and the EU Council of Finance Ministers rushed through a decision in Autumn 2011 which will mean all national budgets must now first be approved by the Commission, before they are even seen by each country’s parliament. If countries do not reduce their debts fast enough or refuse the budgetary “suggestions” from Brussels, enforcement measures will kick in. In the case of France, with a GDP of about €1.900 billion, the Commission could demand a deposit or a fine of between €20 to €100 billion!
Alternatives from the 99%
Clearly, there is a strong need to break with the dangerous free market fundamentalism that has created and worsened a social crisis of vast proportions. There are some proposals for alternatives – put forward by many civil society groups – that could create a fairer and more just world… (…).
Pocket Guide on EU Crisis
For further info:
End financial control of European governance
Greece’s woes: so goes the Euro
Greece: same tragedy, different scripts
Corporate EUtopia: how new economic governance measures
Where did our money go? UK case study of bank bailout
EU Financial Reforms Dossier
Proposal for a fair and transparent debt workout procedure
- Paul de Grauwe, Fighting the Wrong Enemy, Vox
- In graphics: the Eurozone’s crisis, BBC and EU austerity drive country by country, BBC
- Greek Gross Domestic Product Fell By 7.3% In Q2 2011, Capital.gr
- Bank reforms: how much did we bail them out and how much do we still owe, Guardian
- Global bailout tracker, Grail Research
- Federal Reserve System: Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance, US General Accountability Office
- Dossier on EU financial reforms, SOMO, WEED and others
- Austerity measures threaten children, UNICEF
- World Wealth Report 2011, CapGemini
- Top Banks in Europe 2011, Banksdaily.com
- Lobby Planet, Corporate Europe Observatory
- America awakes to the din of inequity, Financial Times, 16 October 2011
- EU austerity: country by country, European Institute, April 2011
- New system of European ‘economic governance’ requires greater austerity, EU Observer, 9 June 2011
- Corporate EUtopia: how new economic governance measures challenge democracy, Corporate Europe Observatory
The Breakdown of Global Capitalism: 2000-2030
Kleptocracy: debt as a method of legalized robbery
by Raimundo Viejo, July 26, 2012