This is my editing of an interview Professor Michael Hudson gave to The Real News Network. I have edited Professor Hudson’s interview for clarity and have not changed the meaning of any of his statements. It is posted on this site with Professor Hudson’s permission. PCR
The Greek crisis is being used to find out how far finance can drive down wages and privatize the public sector.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington.
In Greece, the financial elites of Europe have received agreement from the Greek government to another round of what some people are calling savage austerity measures, for example, lowering the minimum wage by 22 percent, a new round of privatizations, and cuts to pensions and many other social programs.
Now joining us to discuss all of this: Michael Hudson.
So, Michael, what should we be learning from what’s going on in Greece?
HUDSON: We should be learning what the European bankers are learning, which is that a great experiment is being conducted. For the last five years in Latvia, the neoliberals have lowered wages by about 30 percent. The basic premise of today’s model builders is: you don’t know how far you can lower wages and pensions until people begin to press back. Well, in Latvia they still haven’t begun to press back when they’ve lowered by 30 percent. Now they’re moving towards Greece on the way to Spain and Portugal and Italy, and they’re trying to figure out how much can wages be lowered, how much can an economy be drained until there is unrelenting pressure from the afflicted population.
The EU and the banks have appointed a bank lobbyist, who is euphemistically called a “technocrat,” to be in political charge of Greece. His job is to see how much labor renumeration can be squeezed out. The neoliberals realize that the left in Europe is completely fragmented and does not have a defense against neoliberal policies. However, lowering wages shrinks an economy. When you’re cutting the budget deficit, you’re reducing the amount of money that comes into the economy to promote demand. So in effect what the EU is doing is bleeding economies, very much like a medieval doctor would bleed blood, believing that the loss restores health.
The only response that the Greek people have, as they are not represented by “their” government, is to tear the economy apart so that nothing is left for the creditors. The PASOK and the socialist party that bought into the austerity program now have an 8 percent approval rating in Greece. That’s even lower than Obama, the greatest fraud in American political history.
The Greek people are saying: look, when the premier said that they were going to have a referendum for whether we want to cut back wages in order to pay the bankers, the first thing Angela Merkel said was, you cannot have a referendum. We’re going to suspend democracy, we’re going to impose a dictator on you, and we’re going to tell you what to do.
Under international law, if there is no democratic commitment to the debt, the debt taken on is null and void. Therefore, the European Union has had its lawyers say, okay, we’re going to get the agreement of the Greek congress. Well, the Greek people can say, look, you can come down with bags of money and you can buy all the parliament members that you want to approve the deal, but as soon as there is an election, we’re going to throw them out, because they are not acting on our behalf.
JAY: Is not one of the big objectives here privatization? Will the Greek government have to sell everything off? Apparently they’re talking now about selling airports and seaports.
HUDSON: Yes and also the water systems, the sewer systems, real estate, the islands. The debt crisis is being used to create a grab bag for private interests to take ownership over the Greek public sector. And bankers and people who have a plan usually do much better in a crisis than people who don’t have a plan. So this indeed seems to be it. Finance today achieves what military invasion used to do in times past. So the new mode of warfare is financial, not military. It’s much cheaper and it’s much safer for the country doing the attack.
To enforce privatization is why yesterday [February 14] the European Union said, wait a minute, we’re not even going to lend you the money to pay our own banks that have bought your bonds, unless you spell out exactly what you’re going to privatize and commit to it now. And this is a sticking point. In the past, the Greeks have made promises, and thank heaven they haven’t privatized, because once they begin to sell things off, there’s going to be a real squeeze and even more of an opposition. So you’re right. The bailout is a property grab.
JAY: There does seem to be some kind of different approach between Wall Street and the Europeans. Some Wall Street representatives actually say, no to the austerity measures. Why the mixed message?
HUDSON: There are two reasons. Number one, from the very beginning, from the last century, America has already had in the private sector what was in the public domain in Europe. Europe had its power companies, electric and gas systems in the public domain. America privatized them, but as regulated public utilities. The public utilities were regulated as to how much bond and equity they could get, what their rate of return would be. Europe has no body of law to regulate the prices or rent extraction the public utilities can charge, because they’d always had these in the public domain, just like the Soviet Union had no regulated private system. In Europe there’s much more property and public assets to grab than were available in the United States. There is no regulatory body in Europe, because in the past, power, sewer, water and other public utilities were supplied either at cost or at subsidized rates to make the economy more competitive.
The idea in Europe is not only that you cut wages by 30 percent, but also prices can be raised for access to water, sewers, transportation, everything else. The rise in price means higher profits for the private interests who privatize Greece’s public sector.
The result in Greece will probably be the same as it was in Iceland, Latvia, and other countries. There’s going to be a large emigration of working-age labor. And the result will, of course, be to make the economy much less competitive.
In this morning’s newspaper it turned out that Greece’s GDP fell at a 7 percent annual rate, not the 5 percent expected, as usual the newspaper said, to everyone’s surprise, the situation is worse than projected. Well, of course it wasn’t really to our surprise, because we know that when you’re strangling an economy, of course it can’t cope very well. And they’re strangling the Greek economy.
Greece is being used as a laboratory experiment to determine the results when labor is squeezed very hard. It’s like trying to feed a horse less and less and see whether it’s really going to be more efficient until it keels over dead.
[I believe Professor Hudson meant to add that some on Wall Street are worried that harsh austerity measures will result in Greece defaulting, thus exposing US financial institutions, such as Goldman Sachs, to having to make good on the swaps that guarantee Greek public debt.]
JAY: Large-scale unemployment is always a good threat against the employed within a country, the more you can beat up Greece and Spain, Portugal, the more you can threaten the working class of France and Germany, where I guess the big targets eventually will be.
HUDSON: Well, if that happens, there’s going to be a renewed nationalism that’s going to break the common market apart. There will be a sudden realization that when Europe united, the whole idea of unity was to prevent another European war. But now with unity under neoliberal bank rules, the implication is class war.
If the EU is merely a mechanism for war of the rich against the poor, a number of countries are going to say NO to Europe, just as the Icelanders have voted not to join Europe, just as other countries that had planned to join Europe, all the way to Turkey at the other end, are saying, wait a minute, if that’s the Europe that’s coming, an oligarchic Europe whose program is austerity and shrinkage, why on earth would we want to join?
The EU is proving that it works for private banks, but not for its citizens.
Michael Hudson is a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire
The Real News Network
Video – Posted February 15, 2012
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts' latest books are The Failure of Laissez Faire Capitalism and The Failure of Laissez Faire Capitalism and Economic Dissolution of the West and How America Was Lost.