The European Union imposed unprecedented austerity measures on Greece's national budget. As the EU Commission announced in Brussels yesterday, by 2012, Athens must reduce its budgetary deficit from 12.7% of its gross domestic product (GDP) to 2.8%. The "Euro Stability Pact" adopted in 1997 at the insistence of Germany, provides for a maximum deficit of 3%. Several EU countries are in violation, including Germany, whose deficit could reach 6% this year. Greece will now become the first country to be forced to reduce its national budget. Its government must report to Brussels every two - three months with evidence that the dictated austerity measures are being applied. These include especially the scaling back of government employment, cutting wages and raising taxes - all excessively. The U.S.-based financial research company High Frequency Economics predicts a possible rise in Greece's jobless rate to 16%, from its current 9.3%.
The Export Steamroller
In fact the Greek explosion in debts is due not only to the global economic crisis, but is also an expression of a continuous shift in economic relations. According to articles in the business press, there has been the development of "significant economic dichotomies" between the countries in the Euro Zone over the past few years. Whereas in the southern European countries, particularly in Portugal, Italy, Greece and Spain - also designated as the "PIGS countries" - larger portions of corporate revenues have been spent on salary raises, Germany had been practicing a policy of rigorous wage depression to create advantages for its companies. One commentary explains that because the German "army of wage labor accepts a low-level growth in wages, the export steamroller is again bowling over its European rivals." Before the Euro was introduced, it had been possible to resist the deflation of domestic currency. But "in a common monetary realm there is no defense against sinking unit labor costs and advancements in productivity." This is why the current accounts of the "PIGS countries" have slipped "deep in the red." Because Germany, with its export revenues, can still offset the lack of defense possibilities in other economic sectors, it is "the winner and beneficiary of the common monetary system."
But this is exactly why some experts judge the Euro to be endangered. The economic differences within the Euro zone countries foster divergence in their economic political interests. This not only leads to serious contradictions between Germany and France (german-foreign-policy.com reported ), but the entire monetary union "is at risk of becoming ungovernable and the Euro endangered" warns a monetary expert at the University of Bonn. "A common monetary system cannot function, if the economic chasm between the countries forced into the system becomes too wide" writes the German business press, while proposing that, to save the Euro, which is so beneficial to Germany, the "PIGS countries" should be ordered to make dramatic cuts in their government spending, as the EU Commission is now imposing on Greece. The current dictate of the EU Commission is, as a matter of fact, a submission to the demands of the German Bundesbank and chancellor, who had insisted on these sorts of measures back in December 2009.
The Armament Industry
It is noteworthy that Berlin is opposing financial aid for Athens in spite of the dramatic austerity measures, while, at the same time, demanding that Greece buys expensive German armament. Deliberations for solving the Greek financial problems through credits from the International Monetary Fund (IMF) were abruptly rejected by the German government. An IMF credit is linked to conditions and would entail restrictions on the work of the European Central Bank in Frankfort. This is something the German government usually expects from third countries but does not itself want to bear. At the same time, Berlin is pushing Athens to buy Eurofighters that are produced by an arms corporation with headquarters in Hallbergmoos (Bavaria). German efforts to sell the expensive fighter planes to customers abroad and increase the profits of the core European armament industry led to heavy controversy last year (german-foreign-policy.com reported ). During his visit to Athens, at the beginning of the week, the German foreign minister demanded that Greece opt for the Eurofighter in spite of its financial difficulties.
Not only Greece
Business circles are warning that sanctions against Greece could serve as a precedent for similar measures against for example Portugal and Spain. "The peripheral countries of the Euro zone, such as Greece, Italy, Portugal or Spain, have large problems with budget deficits, but also with their competitiveness," a prominent economist recently declared. Indeed, Berlin's low wage policy affects not only Greece. In the meantime Portugal was also forced to introduce austerity measures.
The laureate of the 2001 Nobel Prize in economics, Joseph Stiglitz, is strongly criticizing the austerity dictate being imposed by Berlin. Berlin and Brussels' imposition of these measures, in complete disregard of the intentions of the democratically elected government in Athens, could - according to Stiglitz - considerably retard growth, reduce tax revenues and raise the budget deficit. The economist explains that similar programs have not worked in East Asia and threaten to also fail in Ireland. "There are some people in the EU who believe in deficit fetishism and get a certain comfort from talking tough," concludes Stiglitz, obviously alluding to the EU hegemonic power - Germany.