A Greek bailout deal has been agreed in principle between the country’s government and its creditors. Defne Gonenc writes that throughout the crisis there has been a tendency to view economics as detached from politics, with the impact of economic policies on individual citizens largely pushed to the sidelines in discussions surrounding the technicalities of a bailout deal. She argues that rather than pursuing economics for its own sake, a better approach would be to adopt a narrative that focuses on what economic solutions can do for society

Gonenc, Defne

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8/12/2015The lesson from the Greek crisis should be that economicsexists for the good of society, not for its own sakeblogs.lse.ac.uk/europpblog/2015/08/12/the-lesson-from-the-greek-crisis-should-be-that-economics-exists-for-the-good-of-society-not-for-its-own-sake/A Greek bailout deal has been agreed in principle between the country’s government and itscreditors. Defne Gonenc writes that throughout the crisis there has been a tendency to vieweconomics as detached from politics, with the impact of economic policies on individual citizenslargely pushed to the sidelines in discussions surrounding the technicalities of a bailout deal. Sheargues that rather than pursuing economics for its own sake, a better approach would be to adopt anarrative that focuses on what economic solutions can do for society.We are living in a world where economics is understood to be detached from political andhumanitarian aﬀairs. Many praise the separation of the social sciences, with admiration being given to economics’increasingly technical language and constructed rules. It is easy to forget, however, that economics exists for us, thepeople, and that every economic decision is an inherently political one. Unfortunately, this nuance is frequentlyoverlooked in introductory economics classes.Discourses on technicalities and the complicated mathematical rules of economics have been trumpeted bytechnocratic actors to such an extent that economics at times appears to exist more for its own sake than for society.When the humanitarian aspect of economics is missed, this principle can much too easily become a tool for simplysustaining the status quo. In fact, understanding economics is not diﬃcult: it simply requires opening our eyes andour minds to its consequences.The Greek debt crisis, in particular the referendum held on 5 July, has oﬀered one such route to understanding thehuman side of economics. The referendum took place against the backdrop of an international discoursechampioning the concepts of ‘stability’ and ‘European rules’, among others. Although Syriza has failed to makemeaningful use of this so far, the referendum uncovered several fundamental dichotomies that underpin the dailylives of Europeans, whether they choose to acknowledge them or not: the tensions between a ‘technocratic elite’and the rest of society; the trade-oﬀ between the demands of a shared currency and monetary independence; andthe relationship between the recessionary surplus region east of the Rhine/north of the Alps and states in the rest ofEurope.Yet the debt crisis has also been analysed using other dichotomies instead. One such dichotomy is that between‘supranationalism’ and ‘nationalism’. While the campaigns in the referendum supported a ‘solution within Europe’,adopting the discourse that ‘Greece belongs to Europe’, the debate was not principally about nationalism orsupranationalism. Instead it was a debate focused on the impact of austerity on citizens. The implication is that theGreek people may well ﬁnd a solution within the EU framework if technocratic leaders move away from theirpromotion of austerity policies.Another frequently cited dichotomy is that between the EU project and its voters. Again, this largely misses the keydynamics at play: namely opposition to the policies supported by EU institutions and the IMF. The EU project itself isnot reducible to these policies and oﬀers far more than a particular economic viewpoint promoted by a speciﬁcgroup of actors from the EU and the international community.Next is the dichotomy between ‘stability’ and ‘chaos’. The Greek people did not, contrary to frequent claims, vote forchaos. Stability would not be possible through ‘correct administrative regulation’, and refusing an austerity packageshould not be condemned as a chaotic ideological choice. In fact, the packages oﬀered by the country’s creditorswere clearly ideologically based in their own right, despite the language of ‘stability’ and ‘regulations’.1/3Credit: EU Council Eurozone (CC-BY-SA-3.0)Finally, there is the popular narrative concerningGreek over-spending within the common currency.The reality is that Greece is not suﬀering from a crisisof over-spending. The image of ‘lazy’ Greeksenjoying a lifestyle ﬁnanced by the hard work of otherEuropean citizens is inaccurate: rather, the realreason for the crisis is the indeﬁnite continuation ofGreek debt following several years of unsuccessfulpolicies being imposed as apparent solutions.Evaluating the Greek crisis from the perspective ofthese dichotomies is a largely fruitless exercise.Understanding the ﬂaws contained within thesenarratives is of the utmost importance as it allows forthe crisis to be presented in the correct analyticalframework, thus revealing the true roots of theproblems being faced by Greece.The real cause of the Greek crisisThe key reason behind the high indebtedness of the Greek economy is its low competitiveness levels compared toits European counterparts. The decline in standing of the Greek economy can be traced back to the early 1990s.Upon EEC accession, Greece was unable to undertake the required structural changes necessary to remaincompetitive in the single market where the logic of comparative advantage dominates. This loss of competiveness,when combined with the political misuse of public resources – which had started in the mid-1970s after the fall of thejunta with the aim of easing other political and societal demands – paved the way for a high trade deﬁcit, high publicdeﬁcit and high public debt.Moreover, the monetary policy shared with other European countries under the single currency was incompatiblewith the Greek interests. Fixing the drachma to the euro at an overvalued rate, due to the preceding excessivemonetary adjustment, ensured that Greece’s ‘euro journey’ began on the wrong foot. At the same time, particularlyafter the mid-1990s, the country’s gross national saving rate began to decline without a corresponding increase inthe investment rate. Consequently, Greece has become dependent on importing. Its production base contracted andits trade deﬁcit along with its indebtedness grew.Furthermore, due to the modernisation of debt management in the 2000s, 80 per cent of Greece’s public debt washeld abroad. As soon as the liquidity dried up, the GDP growth rate became negative and bond yields shot up,Greece’s public debt became unsustainable. The lack of a ﬁscal union and the failure of the other Eurozonecountries to give a quick collective response to Greece’s ailing economy also contributed to the severity of the Greekcrisis today. The ﬁnancial demands made by Europe have all but crushed the Greek economy, led to massunemployment and a collapse of the country’s banking system, making the external debt crisis far worse.Currently, Germany is proﬁting from Greece, as it prolongs loans at comparatively high interest rates. The outcomeof lending money is no longer having the debt reimbursed with a proﬁt, but the indeﬁnite continuation of the debt,which ultimately keeps Greece in a position of permanent dependency and subordination. Almost none of the largesums of money loaned to Greece has actually gone to its people. Instead, it has been used to pay oﬀ private-sectorcreditors – including German and French banks – in this perpetual debt cycle. The current solutions oﬀered will onlyensure another “Greek crisis” in the future.Devaluation as a solution?Under such circumstances, one solution would be a devalued drachma. This could result in Greek goods becoming2/3more competitive in foreign markets, and by boosting exports, it would help the Greek economy get back on track.But, alone it would not provide a comprehensive ﬁx. Although devaluation may lead to a short-term boost in exportsdriven by a cheaper local currency, it does not assure a productivity increase among Greek ﬁrms. An increase incompetitiveness – along with currency devaluation – is what stands behind long-term, sustainable growth. And tothis purpose, austerity measures have not worked out.To be able to oﬀer a healthy framework for solutions, the view that the individual is a customer rather than a humanbeing needs to be altered. Likewise, the practice of imposing the same austerity programme in all situationsregardless of speciﬁc circumstances must be changed. This is a programme in which every country must place thecontrol of inﬂation ahead of other economic objectives; instantaneously remove barriers to trade and the ﬂow ofcapital; liberalise banking systems; reduce government spending on everything; and privatise assets that can besold to foreign investors. Dismantling public spending is actually destroying health and education at the expense ofordinary people – and the economy is, after all, for us, the people.The Greek referendum has often been criticised as an act of populism. But the sole existence of the referendumopened up the possibility for openly criticising the policies that, until then, had been championed as an undisputedpath toward prosperity. Alas, the Greek leadership has yet to prove as courageous as its own people.Please read our comments policy before commenting .Note: This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, norof the London School of Economics.Shortened URL for this post: http://bit.ly/1IGFs5L _________________________________About the authorDefne Gonenc – Graduate Institute of International and Development StudiesDefne Gonenc is a Teaching Assistant and PhD Candidate at the Graduate Institute of Internationaland Development Studies, Geneva. She completed her MPhil in International Relations atUniversity of Cambridge as a Jean Monnet scholar. Her research interests cover water andenvironmental governance, environmental rights, and the political economy of the Mediterraneanand India.3/3

The lesson from the Greek crisis should be that economics exists for the good of society, not for its own sake

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