Late last week, Greece got a new prime minister. Lucas Papademos, a former vice president of the European Central Bank, was appointed to lead a unity government that will force through austerity measures demanded by those bailing Greece out.
In other words, a country whose citizens have already been violently resisting austerity measures and EuropeâÄôs perceived infringement on their national sovereignty now has appointed an unelected banker to implement even harsher austerity at EuropeâÄôs bidding. It seems destined to end poorly.
Papademos essentially got the job because the markets demanded it. GreeceâÄôs previous prime minister, George Papandreou, was forced out after he decided to put the most recent European bailout deal âÄî which included austerity measures âÄî to a referendum. Europe couldnâÄôt accept its extremely unpopular demands being subject to a vote and pushed for Papademos to take over. PapandreouâÄôs ousting and PapademosâÄôs appointment were both undemocratic. Papademos does not represent the Greek people, who are overwhelmingly against more austerity; instead, he represents GreeceâÄôs creditors and the international markets.
Papademos is also being billed as a non-partisan âÄútechnocratâÄù who has no agenda other than fixing the Greek economy. This is misleading: Papademos is actually a free-market ideologue disguised as a technocrat operating âÄúaboveâÄù the political process. The austerity measures that he will be responsible for pushing through the Greek parliament are not an inevitable necessity, they are an ideological choice.
Other options available to Greece to solve their debt problem include stimulating growth by increasing âÄî not decreasing âÄî government spending. The problem with slashing government spending is that it can cause the economy to stall and shrink, which would reduce government tax revenue and exacerbate the debt and deficit problem instead of solving it.
Indeed, an economic report released by the United Nations in September warned of the risk of global austerity damaging the world economy. The report said, âÄúThose who support fiscal tightening argue that it is indispensable for restoring the confidence of financial markets, which is perceived as key to economic recovery. This is despite the almost universal recognition that the crisis was the result of financial market failure in the first place.âÄù
The fact that austerity is an ideological choice rather than a necessity is made even clearer when one notices that many of the austerity measures have nothing to do with solving GreeceâÄôs debt problem. Selling off large chunks of the public sector at below market value and laying off public workers are counterproductive: Greece will lose the long-term value of state assets, and layoffs will hurt its economy, possibly making its debt problem even worse.
Lucas Papademos is not a mere technocrat, he is a free-market ideologue representing the interests of those bailing Greece out rather than the Greek people.
And the same thing is happening in Italy. After passing a new round of austerity, Silvio Burlesconi resigned as prime minister, to be replaced early this week presumably by Mario Monti. Monti is also being labeled as a âÄútechnocratâÄù despite his similar steadfast commitment to austerity and slashing the public sector.
Like Papademos, Monti will be unelected. Like Papademos, Monti has been a member of the European âÄútroikaâÄù of institutions trying to keep Europe afloat âÄî the European Central Bank, the European Commission and the International Monetary Fund. In MontiâÄôs case, he was the head of the European Commission. He is also the European chairman of a think tank called the Trilateral Commission, which once criticized the U.S. and other countries for having âÄúan excess of democracy.âÄù
Both Monti and Papademos are respected economists, and they seem to have some good will that comes mainly from not being politicians. They will likely get a honeymoon period, and the passage of austerity packages will be significantly easier. They have taken power to give a sense of certainty and confidence to European markets, but in the end their appointments may do just the opposite.
The people of Italy and Greece are likely to resent that neither leader was elected to his position. The austerity measures each will be responsible for passing, besides being extremely unpopular and causing more violent protests, will harm each countryâÄôs economy. This combination will likely make each country more politically and economically unstable. The move to restore confidence and certainty will have backfired.
The crisis scenario and façade of nonpartisanship will allow each to make the case that he is simply doing what is âÄúnecessaryâÄù when in fact each will be making deliberate ideological choices against the interests of the Greek and Italian people but in the interest of their creditors.
In Greece and Italy, the power of markets has trumped the power of democracy. By appointing these leaders, the decision-making power has been taken out of the hands of the people and put into the hands of what amount almost to dictators.
Democracy and its institutions are supposed to balance market forces, not succumb to them. By appointing Papademos and presumably appointing Monti, Europe has decided to take an antidemocratic approach to solving its problems. The U.S. should learn a lesson by observing this process as it plays out: We should remember that our democratic values and institutions should trump market forces, even in times of crisis.