The fatal consequences of troika’s blind austerity policy

Europeans have for the first time ever the opportunity to help draft an European Parliament report via social media. Join LinkedIn group and advise MEP Alejandro Cercas, who is writing the European Parliament’s report on how the Troika – made up of the European Commission, European Central Bank and the International Monetary Fund – has affected people living in the bailout countries. (EP Audiovisual Services, 08-01-2014).

When the ‘troika’, made up by the European Commission, the European Central Bank and the International Monetary Fund was atypically formed first in spring of 2010 to bail out and audit Greece, its widely advertised purpose was to inflict an internal devaluation on this country. Later on the troika undertook to perform the same task in Portugal, Ireland and Cyprus, by imposing in all those countries an austerity programme which had as a sole purpose to impose an internal devaluation of all prices, so as to allegedly make them competent on international markets.

In a similar arrangement Spain was supported by the European Stability Fund to bail out its banks, in exchange with Madrid’s acceptance to apply the same austerity recipe as the other four countries. In this case the Commission single-handedly undertook the task to make sure that austerity and internal price devaluation was duly enforced in Spain. A similar pattern was followed in the case of Italy, by the Brussels imposed government of Mario Monti. In all those cases the ECB had a secondary non-political but very decisive role.

However, what the troika did in the four programme countries and the similar treatment inflicted by the Commission on Spain, was to impose a purely ideologically inspired economic policy mix. The main idea was to forcefully inflict an internal programme of devaluation of all prices including a deep impairment of the level of wages and salaries. This was done through the erosion of the labour legislation and market traditions, in order to allegedly restore the ‘lost’ competitiveness of all those Eurozone member states.

Social and political destruction

The professed target was to mimic the devaluations of the old national currencies, a trick used in the 1970s and 1980s by south European governments to restore the competitiveness of their exports. What the troika forgot though was that the currency devaluations of the past didn’t erode the social and the political cohesion and of course didn’t destroy the labour market structures meant to support the low paid workers. As ideological leader of the troika emerged the European Commission Vice-President Ollie Rehn. He still supports these destructive policies one year after the IMF recognised that the Fund made a big mistake.

IMF accepted that they miscalculated the negative effect of fiscal austerity policies on the GDP in the case of developed European economies. Now the IMF insists on a generous correction of this mistake by a deep haircut of the sovereign debt of the programme countries. Berlin denies this proposed haircut, despite the fact that the German banks have gained hundreds of billions out of the pain they inflicted on South Europe and Ireland.

Unfortunately, the troika also miscalculated the negative effects on the social and political structures in all programme countries plus Spain and Italy. The abrupt fall of incomes and the erosion of social protection has already seriously undermined the social cohesion in all those Eurozone member states. Their political system has also been irreparably damaged with the emergence of extreme political forces in both ends of the spectrum. In Italy, in the last legislative election, as largest party came to be voted a real political joke, led by a comedian. Not to say anything about the emergence of a marginal group of common law criminals and fascists called ‘Golden Down’ as Greece’s third largest Parliamentary group.

Total failure

The political side effects were not restricted to the countries in question. The economic catastrophe inflicted on them by the troika and the Commission turned them into scape goats for the public opinion in the surplus EU countries. The faulty ‘information’ over the alleged economic support for the ‘lazy southerners’ weighing on the taxpayers of Finland, Holland, Austria and others in Eurozone was promoted by populist media. The result was that also in those surplus member states extreme political formations tried and succeeded to gain popular support on xenophobic, inward looking and Euroscepticist rhetoric.

In total, the troika and indirectly the EU Commission managed to destroy the democratic and socially sensitive image the EU enjoyed in the entire world, by insisting on severe austerity policies. Those policies invariably led to internal economic, social and political destruction without at the same time resolving the basic problem which was and still is, the always increasing sovereign debt.

As it is now evident, the only purpose of all that destruction in Eurozone was to pay back in full the German and French banks, which had carelessly lent hundreds of billions to corrupt south European governments and the Irish banks in the early 2000s. Berlin and Paris have wilfully led the EU into an unheard before economic crisis, just to secure that their banks will get paid back 100% for the crazy loans they imprudently accorded to everybody during the first years of Eurozone’s existence.