Former German Foreign Minister – unambiguous defeat for the German chancellor and her strategy

It was just another day enforcing austerity

It was just another day for enforcing austerity

The Syriza victory is an unambiguous defeat for the German chancellor and her strategy. This is the claim of Joshka Fischer no less (former German Foreign Minister). The defeat of the austerity program stands as first big achievement of the Greek people that voted in the Syriza led government in January. The Greek people and their government have been vindicated in rejecting the austerity program and the Troika machinery that was put in place to enforce that program. The rejection of austerity may now spread beyond Greece as people in other countries begin to organise.

Full statement by Fischer in The Guardian here. Excerpts provided below.

Even before the leftist Syriza party’s overwhelming victory in the recent Greek election it was obvious that, far from being over, the crisis was threatening to worsen. Austerity – the policy of saving your way out of a demand shortfall – simply does not work. In a shrinking economy, a country’s debt-to-GDP ratio rises rather than falls, and Europe’s recession-ridden crisis countries have now saved themselves into a depression, resulting in mass unemployment, alarming levels of poverty and scant hope.

Warnings of a severe political backlash went unheeded. Shadowed by Germany’s deep-seated inflation taboo, Chancellor Angela Merkel’s government stubbornly insisted that the pain of austerity was essential to economic recovery; the EU had little choice but to go along. Now, with Greece’s voters having driven out their country’s exhausted and corrupt elite in favour of a party that has vowed to end austerity, the backlash has arrived.

The Greek election outcome was foreseeable for over a year. If negotiations between the “troika” (the European commission, the ECB and the International Monetary Fund) and the new Greek government succeed, the result will be a face-saving compromise for both sides; if no agreement is reached, Greece will default…

A compromise would, de facto, result in a loosening of austerity, which would entail significant domestic risks for Merkel (though less than a failure of the euro would). But in view of her immense popularity at home, including within her own party, Merkel is underestimating the options at her disposal. She could do much more, if only she trusted herself.

In the end, she may have no choice. Given the impact of the Greek election outcome on political developments in Spain, Italy and France, where anti-austerity sentiment is similarly running high, political pressure on the Eurogroup of eurozone finance ministers will increase significantly. It does not take a prophet to predict that the latest chapter of the euro crisis will leave Germany’s austerity policy in tatters – unless Merkel really wants to take the enormous risk of letting the euro fail…

Nothing but growth will decide the future of the euro. Even Germany, the EU’s biggest economy, faces an enormous need for infrastructure investment. If its government stopped seeing “zero new debt” as the holy grail and instead invested in modernising the country’s transport and municipal infrastructure, and in digitisation of households and industry, the euro – and Europe – would receive a mighty boost. Moreover, a massive public investment programme could be financed at exceptionally low (and, for Germany, conceivably even negative) interest rates.

The eurozone’s cohesion and the success of its necessary structural reforms, and thus its very survival, now depend on whether it can overcome its growth deficit. Germany has room for fiscal manoeuvre. The message from Greece’s election is that Merkel should use it before it is too late.

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