PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Washington. The eurozone crisis
continues to push world stock markets on a roller coaster ride. And much of the focus
has been on Greece, and now Italy, and state sovereign debt. But the real issues are perhaps
more profound and more structural questions are really at stake. Now joining us to talk
about all of this is Gerry Epstein. Gerry is the codirector of the PERI institute in
Amherst, Massachusetts. Thanks for joining us, Gerry.
GERALD EPSTEIN: Thanks for having me, Paul.
JAY: So, Jerry, the actual size of the Greek debt and the debt of these peripheral countries,
it's not really that big in the scheme of things, not in a multi-trillion dollar global
economy. So there has to be something more profound structurally that's causing this
crisis in Europe.
EPSTEIN: The main problem is not the Greek debt, per se. They had hoped to put a ring
fence around that, because the Greek debt, as you said, is actually not that large. But
the bigger concern is that this might spread to much larger countries. And it has spread
to much larger countries--Spain and Italy now. The fundamental problem is that the euro
system was set up to try to maintain a neoliberal, austere, free-market kind of economy, and
it's not well set up to deal with a financial crisis, one that's beset by plunging into
what is looking increasingly like a depression.
JAY: So some people have argued that one of the underlying structural issues is that Germany
used the eurozone to depreciate the German currency to make it easier to export to peripheral
countries of Europe. It also made it easier to loan them money so they could buy German
products. So, in other words, Germany really benefited from all of this state debt that
was building up in the peripheral countries. And now, I guess you could say, chickens are
coming home to roost. Is that really what part of this issue is about?
EPSTEIN: Absolutely. That's--I completely agree with that. So the Germans--I mean, look
what's happening to the Swiss franc [incompr.] not part of the euro, and the value of the
Swiss franc is going up through the roof. And the Swiss economy is getting battered
by that. You can't export. It's importing cheap products that are undermining its domestic
industry. Now, imagine that had happened to Germany--and it could well have, because of
the strength of the German economy. To avoid that, Germany has had the euro. It's kept
its currency down. It's exported products to all over Europe and has not imported that
many products from them. So how are the rest of the countries in Europe supposed to pay
for this? By borrowing money. And it was set up in such a way that the banks of Europe,
particularly in France and Germany, would lend money to the peripheral countries so
that they could buy products from Germany and keep the German economy going. So now
what is looking like--what is taking the form of a sovereign debt crisis, all these peripheral
countries borrowing money, is really turning into a banking crisis, because they borrowed
money from all these banks to finance imports from Germany.
JAY: So the banks are pushing for austerity. The political leaders of Europe are pushing
for prosperity. Most of the media is on the austerity train. You know, on the face of
it, it seems completely irrational that you would push policies onto Greece and Spain
and Portugal, and perhaps Italy, that will essentially force them into deeper recession.
But then I think about it, well, maybe it isn't so irrational, maybe it's actually quite
rational, because maybe the real objective is to take advantage of this crisis to break
the back of the welfare state in Europe, to break the back of the union movement in Europe.
I mean, European workers still are, you know, somewhat better off in terms of social safety
net and such than American workers. I mean, is that what the real objective is here?
EPSTEIN: Well, I think that's at the core of one of the ideas behind the response. It's
a form of shock therapy like Naomi Klein has talked about. And, yes, there's been a group
of bankers and industrialists and politicians in Europe who never really accepted the welfare
state, just as these politicians and industrialists like the Koch brothers never accepted the
New Deal. And so the idea is to use this crisis as a way of turning back the clock, you know,
50 or 60 years. But it's a dangerous game, it's a very dangerous game, because this austerity
is turning--making it impossible for these countries to pay back their debt. It's pulling
people out into the streets, increasingly, to protests this, not just in Greece but elsewhere.
And just as in the 1930s, it's leading to--it's going to be leading to a major--and I hope
not, but potentially violent clash. And it's not at all clear in the end who's going to
win. So it's definitely a strategy by many of the bankers, industrialists, and politicians,
but it's a very dangerous game.
JAY: What is that? And what do you make of the response of the G-20 to all of this?
EPSTEIN: It reflects an inability to deal with this in a serious way. Many people know
what needs to be done: to get out of this austerity approach, to deal directly with
the debt, for example, by having the European Central Bank have the countries issue European-wide
bonds. Have the European Central Bank buy those bonds. As part of that process, make
the creditors take significant haircuts. As part of that process, make banks recapitalize
themselves, and possibly turn some--the banks into European-wide banks that can be properly
regulated by European financial regulators. And there are series of other kinds of steps
that economists and others have talked about that would at least bring us towards a solution
to this crisis. Secondly, an abandonment of the austerity approach and the implementation
of a more investment-oriented, Keynesian approach to revive these economies, because pushing
more austerity is just going to be self-defeating and just lead to more violence, potentially,
in the streets.
JAY: Well, maybe the objective, as I said, isn't to break the back of the gains the working
class of Europe achieved after World War II to break the back of the welfare state, to
promote privatization. And, you know, maybe solving the crisis as such isn't the short-term
objective. Maybe it is about take advantage of this moment.
EPSTEIN: Well, of some, I'm sure. Part of the solution has to be for the socialist parties
in Europe to stop acting like neoliberal parties and to listen to the various progressive groups
out in the streets similar to the Occupy movements here, and really start forming true left progressive
parties in Europe, abandon the old socialist party compromise, and put forward an alternative
program. And there's lots of writing and lots of understanding of how to do that, particularly
since the Europeans did do a lot of these more progressive kinds of activities in the
1950s and '60s. Let me just say one other thing about this. Another reason why this
is so dangerous to the whole global economy is because it's just like the pre-Lehman banking
system, where there are all kinds of exotic bets being written on European debt, on Italian
debt, and so forth by speculators and banks on this side of the Atlantic. We don't really
know who's holding these credit default swaps. We don't really know how intertwined and interconnected
these dangerous bets are. So we're no better off now than we were prior to Lehman, despite
the fact that the Federal Reserve and the Treasury here in the US and governments in
Europe have been bailing out the banks to billions and billions of dollars. So that
has got to stop.
JAY: So perhaps the people that are in charge of this eurozone crisis could inscribe on
their banner "apres moi le deluge". They don't really seem to care, at least in the short
term, about the negative consequences of this crisis.
EPSTEIN: I think that's part of it for sure. But the game is going to be up pretty soon,
I'm afraid.
JAY: Thanks very much for joining us, Gerry.
EPSTEIN: Thank you.
JAY: And thank you for joining us on The Real News Network.