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GLOBAL JOURNALIST: Are we approaching economic disaster?

Friday, December 17, 2010 | 11:43 a.m. CST

Byron Scott, professor emeritus, Missouri School of Journalism: When 17th- and 18th-century philosophers like Hobbes and Rousseau started recommending the so-called social contract as a way for governments to serve their citizens, they didn’t include medical care or retirement income. Nor did they ask about paying for university tuitions or maternity leaves. But under the stress of the worldwide recession, some of the best loved perks of the social contract are under threat. Across the European Union, governments are proposing austerity measures, cutbacks and reforms that are not going down well with their citizens.

To discuss the developing holes in these social safety nets and the reactions are Bruce Crumley, Paris bureau chief, Time Magazine, Paris; Ambrose Evans-Pritchard, international business editor, The Telegraph, London; Sara Burke, freelance multimedia journalist, Dublin, Ireland; and Yannis Behrakis, chief photographer, Reuters news, Athens, Greece.

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Yannis, tell us about the state of the protest in Athens. It seems the country is essentially shut down.

Yannis Behrakis, chief photographer, Reuters, Athens, Greece: It has gone on for some time now. The last couple of days, things have moved faster, and it seems everybody’s on strike. I have never seen Greece in a worse situation. The metro doesn’t work, banks, hospitals — it’s all over the place. Yesterday we had some serious riots in the center of Athens.

Scott: And this is in reaction to the cutbacks resulting from the European financial situation. Ambrose, talk to us about these general woes and why they’re so widespread.

Ambrose Evans-Pritchard, international business editor, The Telegraph, London: In my view, what is happening in Europe is how the gold standard worked in the beginning of the 1930s. You have a fixed exchange rate system, which is what the Eurozone is, and some of the countries just can’t cope. They’re having to engage in debt deflation policies and austerity measures that are driving them deeper into a vicious downward spiral.

At some point, the European leadership will have to come up with a totally different structure. Either Northern Europe takes over responsibility for the debts of the whole area, or there is going to have to be massive debt restructuring in Ireland and across Southern Europe.

Scott: Sara Burke, give us the Irish perspective. Much of this new austerity has to do with a European Union and International Monetary Fund bailout. Is that correct?

Sara Burke, freelance multimedia journalist, Dublin: It is, except we’ve had two and a half years of austerity measures. Before the most recent budget last week, we had 14 billion Euros taken out of the economy through those measures, and yet we’re not seeing any benefits from that. This time around, another 6 billion was taken out, and there is a sense among the people that this just isn’t working. You can’t keep on cutting; you’ve got to invest at a certain point.

From the most recent IMF deal, our bank debt has now become our sovereign debt. While we haven’t had the violence or the protests that we’ve seen in Greece, there is a growing discontent among the people and a big distance between the people and our political leaders.

Scott: And in France, Mr. Sarkozy may go down in history as the most unpopular French president since Napoleon lost at Waterloo.

Bruce Crumley, Paris bureau chief, Time Magazine, Paris: Sarkozy’s problem is a bit of Europe’s problem, and there is no coherency to the response. I was one of the few, only foreign journalist, to interview Sarkozy before he became president. He was an economy minister at the time, and he was talking out of both sides of his face, saying, “Well, I could be an interventionist like the usual French dirigiste, or I could be a free marketer and follow my ideological heart.” I pointed out to him that you can’t do that. You can’t be dry and wet at the same time.

This is one of his problems in trying to answer the crisis. He is at one point attacking markets and at the next side caving into market pressure. I think we’re seeing that lack of coherency across the board in reaction by European leaders to this crisis. Ireland is a great example where private bank debt has become sovereign debt. Two years after we watched in horror as the financial markets nearly imploded, and the basic problems of greed that created the crisis have not been addressed at all. This is as much a political crisis of a lack of leadership as it is economic.

Scott: There is a human cost to that as well. That’s why the Greeks are in the streets and why we’ve had protests around Europe. Yannis, what are the Greek citizens protesting against specifically?

Behrakis: Yesterday while the Parliament was approving reforms and spending cuts with a condition of 150 billion euros, about 50,000 to 60,000 people marched toward the Parliament and they were shouting. Greece was always considered a peaceful place, sunny, good food, people having fun, and all of a sudden, it reminds me of another era from another situation. People were shouting to revolt and overturn government measures. They attacked a member of the parliament and the former minister of transportation. They attacked him and almost lynched him. It was scary.

For months and months, I would say since February and March, people are unhappy. Everybody is worrying. I walk in the streets, and people are coming from the grocery shop saying, “Yannis, what is going on, what do we have to do? Should we take the money out of the banks? Should we send the money abroad?” I say, “Relax, it’s not going to be that bad.” People are worrying all the time. The morale is the worst ever.

Scott: Is this also the case in the UK, where we’ve had protests against the rise in university tuitions and the cuts in other social benefits?

Evan-Pritchard: Yes and no. We’re having severe austerity policies under the new government. It includes big cuts in support for students. But there are some big differences in terms of the macroeconomics of this. Britain has had a big devaluation and a very active central bank, so the austerity is being offset by other forms of stimulus on the exchange rate and monetary policy.  The problem for the southern countries in the Eurozone is they need a devaluation, but they can’t do it because they’re in the Eurozone. So they’re stuck and just have to deflate.

This is what the IMF calls “internal devaluation.” You don’t do it by letting your currency fall 35 percent; you do it by ramming down wages 25 percent. As Keynes said in the 1920s, wages are very sticky going down. When Britain tried to cut wages in 1926, we had the General Strike, and it was the closest Britain ever came to civil war in the 20th century. It is very difficult to slash wages in a society. People won’t accept it. Fortunately we’re not going to have to go through that this time, but that is what is being demanded to some degree in Ireland and in several countries in southern Europe.

Scott: What about that, Sara?

Burke: People have experienced huge cuts in their standard of living and in their take-home pay. The Irish government introduced pay cuts across the public sector, which was hugely resented, and in the most recent budget, there was a broadening of the cuts in both the minimum wage and social welfare rates and the introduction of this new universal social charge. Although it is meant to be progressive, it is actually regressive. So for example, in Ireland, the poorest parts of the population have had free access to public health care, and for the first time ever they’re going to have to pay this universal social charge.

So the government is cutting services and transferring payments from the state onto the people. So it means people have less spending power, which means our economic stagnation continues. We’re in this catch-22 situation, and the people realize this, but our politicians don’t. They’re proceeding with the same politics and policies that got us into this mess.

Scott: In France, a lot of this began with the Sarkozy administration’s proposal to raise retirement age that curiously brought students to the streets.

Crumley: France is very big on entitlements, and anytime you try to take entitlements away, the entire country comes out. Any one part of society that is being deprived is joined by the rest of society that says, “Well, I’m next.” The other thing that the government didn’t really bank on is the students realizing, “Wait a minute, I might be only 16 or 17 or 18 now, but I’m going to be 67, 70, 80 at the end of my lifetime, and this is going to affect me then.”

But to get back to the Irish situation, there is a lot of pain being imposed, the efficiency of which has yet to be proven. The increase in retirement age is good; but look at the demographics with the baby boomers retiring out and this being a pay-as-you-go system. Of course you’ll need people to stay on longer for their retirement scheme. But the problem is that France has the lowest level of people aged over 50 in the workforce in all of Europe. Companies are not hiring these people as it is. How are you going to get them to hire now and keep them for two more years? So again, these are seemingly logical responses in a time of crisis, but they’re responses that have not yet worked.

Scott: Here in the United States, we’ve had a plethora of variously effective and ineffective solutions come through our administration and our Congress. And we’re not quite sure where we’re going with these solutions either. Ambrose, what do you see as the immediate future?

Evans-Pritchard: I think one of the problems here is that the pain hasn’t been evenly distributed. The entire Eurozone, with a few exceptions of bondholders and credit holders, are not taking any losses, so the pain is being imposed upon the working people. If you’re going to get any kind of democratic consent behind these policies, you have to be seen as fair. It is just not tenable to carry on in this fashion.

There are going to have to be major cuts across the board of bondholders who got involved in this. They lent all this money in the credit bubble, which was quite reckless and irresponsible. They shouldn’t have done so, but they did, so they should share the pain. Only on that basis can you have a socially equitably solution.

How do we get out of the crisis? Well, we’ve had a 50- or 60-year debt build up in the Western worlds. When you do that, you’re drawing prosperity from the future. Eventually the future arrives, and it arrived in 2007 and 2008. Unfortunately, we’re going to have to go through maybe five to 10 years of deleveraging, very low growth rates, very high unemployment for probably a decade. I’m afraid there is no magic bullet. We made these mistakes before, and we now have to live with it.

Scott: What, if anything, is expected from the United States and its role in the world economy?

Crumley: Well, had you asked Sarkozy six months ago, it would have been to follow the calls of people like Paul Krugman, that public spending will build up debt. But the economy needs such a strong kick-start to get out of its major stall that it is better to throw a ton of money at it that you’ll figure out how to finance later and get things moving again rather than cave into speculative markets that are creating the sharp edge of this crisis with the sovereign debt crisis. Spend the money to get the economy rolling again, and later on when the waves have stopped rocking your boat around, then you start cutting, because that’s when people can accept it.

Right now, if people had their druthers in Europe, it would be that the U.S. would do exactly the opposite of what it looks like it is about to do and start spending even more money than it already has.

Scott: Sara, there is such a close relationship between the Irish Americans and Ireland. Is anything being said about the role of the U.S.?

Burke: The only sort of green shoots in the Irish economy are our exports, and our exports are actually growing at the moment. Our exports are actually largely from multinational American companies that have their European headquarters in Ireland, so it is very important for our economy that they continue to operate here.

While we’ve been an active member of the Euro for the past few decades, a lot of the current government policy was a much more American free-markets model. So while we’d like to keep the U.S. business we have here, there is also a sense that we need to move toward a more European social model where we pay higher taxes with better safety nets and better social protection system. I think we’re going to have an election that is a contest of ideas and ideologies rather than government persuading them to go and vote. I guess America is on the edge of that rather than a central part of it.

Scott: What about Greece, Yannis?

Behrakis: Well, the debt is huge. The government talks about going back into the market in the next couple of years, but everybody thinks that the government is saying things to calm down angry people.

Scott: Does this mean that the government may well fall?

Behrakis: I don’t know. In a 300-seat parliament, the government has 157 seats. Yesterday, they lost one seat because one of their MPs voted against it, so he was taken out from government. If this continues, we might soon have elections.

Scott: Let’s talk about the French political fallout from this.

Crumley: The political fallout is not so pointed. It blends more into discontent in France with Sarkozy’s leadership. We’re seeing that we do not have the decisive DeGaulles or even Mitterands that we have come to expect. We’ve got these people who basically kibitz and play politics while Rome is burning. That may change, however, as austerity takes hold and people feel the very hard edge of that sword.

Scott: Ambrose, are we looking at an essentially short-term Cameron government?

Evans-Pritchard: No, I think it has been remarkably successful so far. And they’ve actually got a mandate for the austerity policies they are pushing through, which gives them some protection. In Europe, there is an aging crisis that has been building up for several years. It was disguised during the credit bubble over the last decade when there was easy money, and now we finally have to confront the aging crisis with a vengeance. The health costs and the pension costs have gone through the roof everywhere. To that extent, the social contract must be changed. What the credit crisis has done is brought it forward violently.

Crumley: I agree with everything right up to the last sentence, but look around. Stock markets are booming, business markets are posting profits and we’re not even talking about the banks. There’s a lot of money out there. Hedge funds are dealing with trillions and trillions of dollars every day. It’s not that there is not enough money to finance these programs. It’s that nobody has the political will to go out there and get them.

Burke: In Ireland, all our armed services are still functioning, and our public servants are paid extraordinarily well. Our prime minister is paid more than Barack Obama and David Cameron, and yet we’re an island of 4.5 million people. So there is a real challenge for politicians to embrace that change and start it at the top rather than imposing it at the bottom. And from an Irish perspective, there is a very strong feeling that the bond holders and creditors are going to have to be held to account. And while debt restructuring must take place, in an Irish context, it is probably going to have to take place at a European level rather than at a national level, because we’ve lost that ability to move our currency.

Evans-Prichard: The Bank for International Settlements, which is a central bankers’ bank, put out a hair-raising report early this year saying nearly all the developed countries have reached the end of the line in terms of the amount of debt they can raise on the markets. Whether in the United States, Europe, or Japan, they have all pushed it beyond the point of sustainable debt dynamics right now. You can’t keep borrowing like that. What it warned was the markets will simply cut these governments off unless they get their act together. We may have a couple more years, but you can’t leave it very long. It is getting very dangerous.

Scott: This is our final show of 2010. For the next several weeks our audiences we will be sharing the best of recent Global Journalist shows.  We’ll be back after the holidays.

Producers of Global Journalist are MU journalism graduate students Ryan Kresse, Youn-Joo Park, Tim Wall, Rebecca Wolfson, and Kuba Wuls. The transcriber is Pat Kelley.


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Comments

Gerald Pechenuk December 17, 2010 | 1:57 p.m.

Look at the physical economic projects of China, high speed maglev rails, water projects for irrigation and electricity, 500 nuclear power plants, fusion energy research, an aggressive space program. This is the way out of the mess of
austerity and bailouts.
Lyndon La Rouche has proposed re-instating this type of program in the West, stopping bailouts with Glass-Steagall and starting up these type projects which will grow the economy. It did work with FDR and it will work now with LaRouche.
You tried the rest and it all failed, now try the tried and true successful solutions. Why not?

(Report Comment)
Jimmy Bearfield December 17, 2010 | 2:38 p.m.

Gerald, I'm skeptical that China is a good model to follow: http://blogs.forbes.com/greatspeculation...

(Report Comment)
Gerald Pechenuk December 17, 2010 | 3:58 p.m.

Jimmy,
You are skeptical about China, you say.
Are you also skeptical about the history of the ideas behind the economic development of the United States of America??
What Larouche is talking about is Alexander
Hamilton, Isaac (the Patriot) Roosevelt, Matthew Carey, Henry Carey, Abraham Lincoln, E. Peshine Smith, William McKinley, and Franklin D. Roosevelt.
You and I and every other American alive today, have greatly benefited from the ideas of the above American patriots.
Are you familiar with the differences between a credit system, such as the American system of economics, and the opposite or opposing system, a monetarist, speculative system of economics?

It would greatly enrich your understanding of history and economics, if you could identify the fundamental differences between the two systems.

I can tell you first hand, China understands the difference, do you? Regards, Gerald

(Report Comment)
Paul Allaire December 17, 2010 | 4:22 p.m.

Larouche occasionally borrows some new and old ideas and presents them as his own. Every few years people make fools of themselves endorsing him without actually being able to understand that which he attempts to say or write. When you keep repeating his name, my mind sort of turns off, much as if you had started relaying to me what Sarah Palin had said. This is unfortunate, because while the man is nothing more than a self serving parasite who has likely destroyed everything and anything he has been able to latch onto, a large amount of what he says is well grounded in reality and needs to be said. He makes a mockery of your attempt at enlightenment. Find the original sources of his information.

(Report Comment)
Andrew Hansen December 17, 2010 | 4:54 p.m.

"Lyndon La Rouche has proposed..."
.
Well that will make a person spit their coffee out laughing. One of my prized possessions is a LaRouche for President flier that was handed to me in front of Memorial Union in 1992. It started out something along the lines of "The following statement has been issued by Lyndon La Rouche from his prison cell in Rochester, Minnesota". Not sure I would ever listen to Mr. Mail Fraud.

(Report Comment)
Jimmy Bearfield December 17, 2010 | 4:57 p.m.

Gerald, I'm not interested in hearing about Larouche, et al. Yes, I know that you were his campaign manager for many years. Meh. For all I know, he and I might be on the same page about a lot of things. You and Paul can chat amongst yourselves about Larouche's school of thought. Me, I'd rather spend my time focusing on what the feds are doing right and wrong.

(Report Comment)
Michael Williams December 17, 2010 | 5:08 p.m.

Too bad they never answered the article title's question.

(Report Comment)
Gerald Pechenuk December 17, 2010 | 5:37 p.m.

Michael,
They were afraid to, cause the
answer is "YES." They live in a world
of doublespeak where YOU have to
"read between the lines," to use your
own sovereign mind to figure out what
is the reality that they refuse, on principle,
to discuss.

(Report Comment)
Paul Allaire December 17, 2010 | 5:47 p.m.

Oh my.

(Report Comment)
Michael Williams December 17, 2010 | 6:10 p.m.

Gerald:

I'm fearful of 2011. Not for me....Me and mine are gonna be ok.

This isn't over yet; a financial snowball has started rolling, and it's getting bigger. I don't know how it will end, but I'm planning for at least 3 more years of this. "More" wouldn't surprise me.

(but, hey, I'm not pessimistic or nuttin', lol)

(Report Comment)
Gerald Pechenuk December 17, 2010 | 6:53 p.m.

To: Andrew Hansen

Andrew,
I'm very happy to hear that you saved that piece of literature from LaRouche when he was in prison in 1992. During that same year (and perhaps it is in the literature you have there, that you have felt compelled to save), LaRouche warned of the danger of the use of "derivatives," which Alan Greenspan had introduced into widespread use, when he took over as the Federal Reserve Chairman in 1987. Greenspan saved the day, temporarily, for the global financial speculators who had employed him (check out his stay of employment at JP Morgan, and his diatribe against the FDR Glass Steagall Bill.)
So, let us see if we can get it right. LaRouche warned against the use of derivatives to save the speculative bubble, the great genius Greenspan and his collaborators, including Larry Summers, the master of Schumpeter's Creative Destructionism philosophy, ruined the US and world economy. Larouche was right and Greenspan and co. were wrong.
Get it right and accurate. Report only the facts, Not your opinions and prejudices. LaRouche was right about the danger of derivatives and that has been born out by reality.. Your champions have failed to deal with reality.
Andrew, you were right to save that piece from LaRouche. What amazing foresight!

(Report Comment)
Terry Ward December 18, 2010 | 10:08 a.m.

"Fezzik, tear his arms off. "

(Report Comment)

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