Italian PM – Austerity Not Leading to Growth

PAUL JAY: Welcome to The Real News Network.
I’m Paul Jay in Washington. In part one of our interview with John Weeks
(and you’ll find it right below here in our episode), we discuss Fareed Zakaria’s show
of Sunday, where he talked about Germany making reasonable demands on Greece, requiring reforms
and fiscal consolidation and such. And that’s the path to growth, Zakaria said. But it was
kind of ironic. In the very next segment of Zakaria’s show, he interviews Prime Minister
Mario Monti, and Monti more or less says, well, we’re doing everything we’re being asked
and there’s no growth. Here’s a segment of that part of the show. FAREED ZAKARIA: When you talk about the need
for a growth agenda in Europe, are you saying that the austerity programs really haven’t
worked? If you look at a country like Ireland, which has done everything it was asked to
do, or many of the things, in terms of fiscal consolidation, cutting spending, raising taxes,
it has not produced growth. It has not even produced much investor confidence. Italy’s
budget deficit is up, its debt-to-GDP ratio is up, largely because growth has collapsed.
Should these austerity measures end? MARIO MONTI: First of all, I don’t like to
speak about austerity. I prefer to speak of fiscal discipline. Fiscal discipline, in the
end, amounts to austerity if it is not accompanied by other policies. Fiscal discipline, in my
view, is there to stay. Italy has done huge efforts towards fiscal discipline, and it
is now the country in the European Union which will achieve a structural balanced budget
before all the others next year–actually, a slight structural surplus. And yet growth
is not coming. ZAKARIA: How does that happen? So you in Italy,
as you say, you have done more fiscal consolidation than any country. You’ve done structural reforms
as well. Now, how do you get that demand going? MONTI: Exactly. ZAKARIA: You need somebody to buy your products.
Are you saying you want Germany to buy things from you? MONTI: Well, we are gaining a better position
in terms of competitiveness because of the structural reforms. We’re actually destroying
domestic demand through fiscal consolidation. Hence, there has to be a demand operation
through Europe, a demand expansion. As you pointed out most clearly, we, for example,
in Italy are having problems because we have achieved very good fiscal results–but will
they really be sustainable in the longer term unless the dominator, GDP, increases through
growth? JAY: Now joining us again to discuss all of
this is John Weeks. John is a professor emeritus at the University of London School of Oriental
and African Studies. He’s the author of the book Capital, Exploitation and Economic Crisis.
He’s also the founder of And he joins us again from London. Thanks, John. JOHN WEEKS: Well, thank you for having me
again. JAY: So Zakaria and Monti now seem a bit in
a quandry. They–what they both had advocated, and certainly what the financial elite of
Europe advocates, Italy says it’s doing, and there’s no growth. What do you make of that? WEEKS: Well, as I said in the other interview,
this is all a complete misrepresentation of what’s going on and using terms that obfuscate
and mislead people. And so, for example, fiscal consolidation, fiscal discipline, these words
cover–what they mean is cuts, cutting things that affect people’s day-to-date life. So
what Monti is saying is, we’ve achieved fiscal discipline. Sounds good, doesn’t it? It sounds
like now we’re–we were undisciplined before; now we’re disciplined. Rubbish. Italy was
not undisciplined in fiscal terms. If you look at the numbers, Italy ran an expenditure
surplus throughout the 2000s, up until the great crisis of 2008. Yes, a surplus. Where their deficit came from was interest
being paid on the national debt. And the reason the national debt was so large was because
in the 1990s, the Italian government borrowed to maintain the lira par with the German currency
in order to enter the euro. I mean, if ever there was a case of being careful of what
you want because you might get it, this is it. So the larger debt that everybody attacks
Italy about, where did it come from? It came from borrowing to maintain the currency into
the euro. Alright. There was no need for fiscal consolidation,
because actually interest rates for Italy are much lower now than they were in the 1990s.
This is a–in the case of Greece, there was a genuine fiscal problem which could have
been easily solved. But in Italy’s case, there is no fiscal problem. You know, Berlusconi
in his final days as prime minister was interviewed, and in that interview he said, crisis? There
is no fiscal crisis in Italy. Berlusconi, a congenital liar, for once in his life told
the truth. There was no fiscal problem in Italy. This is a pure speculative phenomenon.
And the Italian government, the Italian elite, is taking advantage of it through Monti to
remove those protections of workers and small businesses in order to facilitate the development
of big business in Italy, particularly in the retail area. JAY: And then Monti in a sense acknowledges
the effect of this, because he says to Zakaria, well, we did all this, and now we destroy
domestic demand. I mean, so what do they think? How is there going to be growth after you
destroy domestic demand? So, you know, they’re not offering solutions on either side. WEEKS: It’s true. I want to say one more comment
about–I read the text of Monti’s response. At one point, Zakaria–doesn’t attack–says,
you know, democracies don’t seem to be very good at solving these problems; that’s why
they had to put you into a government in Italy, a nonelected government. I mean, it is remarkable
if you think about it. We have two nonelected governments in Europe, in Italy and in Greece,
imposed from external pressure. I mean, that is extraordinary, isn’t it, in the 21st century. JAY: Yeah, it’s also kind of ironic. Zakaria’s
worried about German voter taxpayers in a democracy bailing out Greece, but he’s not
very worried about any democracy in Italy or Greece. WEEKS: [incompr.] and so Monti says, democracies
aren’t very good at doing this, because voters have a short-term viewpoint and can’t see
the long term. Democracies are not very good at doing it, because it is a policy of the
99 percent. It is very hard to get a majority of people to come out in favor of the policies
that help the 1 percent and harm the 99 percent. So, yes, democracies don’t do very well at
imposing austerity, for the most part. So how do you get out of this? We’ve known
for a long time how to got out of it: indeed, a fiscal expansion. Now, let me say it will
not be quite that simple in Europe, because the German government has been quite successful–German
governments, I should say, plural–been quite successful in creating a cost gap between
German products and the products of the other European countries. This was primarily by
methods that I discussed in a previous interview. Okay. Somehow you have to close that gap and
get back to a situation in which trade is more balanced among those countries. So first
you stimulate demand so that there is more demand within each country. But then you need to do something such that
you have a demand stimulus in Italy and the result of it isn’t, say, for half the demand
stimulus to go on the importation of products from Germany. And I think what needs to happen
there is there need to be–for the countries with trade deficits with Germany there need
to be temporary export subsidies, just as Germany had export subsidies. So if you combine
a fiscal stimulus [incompr.] general increase in demand and something to narrow the cost
differentials, you would have recovery. But it’s not going to happen. That is not going
to happen. JAY: But the other part of this, too, does
there not also have to be something because part of this destruction of domestic demand
is, you know, the lowering of pensions, and most importantly the lowering and undermining
of wages, that if this is going to be sustainable, there has to be some kind of policies that
lead towards higher wages? Is that not part of this? WEEKS: A number of people, German economists
too, have said we need a policy in which growth is tied to increases in money wages. And the
increases in real wages are tied to increase in productivity. This was in fact the practice
in the 1950s and the 1960s. I mean, that’s what European governments sought to achieve
through various mechanisms, pacts between–tripartite pacts with government, labor, and business,
in which you–the rising–the incomes of workers and a majority of the population moved in
step with productivity and with growth. We need to return to something like that. I don’t
see it happening, but that is the only way there will be sustained growth at at least
a moderate pace in the major economies, and, by implication, at the global level. JAY: Now, twice you’ve said, I don’t see that
happening. So what do you see happening? WEEKS: Well, when you interviewed me (I don’t
know if you recall it) in October of last year, I said there was going to–very likely
to be another major financial crisis, and it would probably be the coming year, that
is, in 2012, and that it would be around the euro. You didn’t have to be Nostradamus to
make that prediction, let me say. [incompr.] what will happen? People argue,
well, you know, should Greece drop out? Should Greece default? What will–you know, with
the–wouldn’t it be mad to default? Things are out of control. Greece is going to default.
This is–if I can take a phrase from Gabriel García Márquez, this is a chronicle of an
exit foretold. Sometime next month, Greece will default. There will be an election. If
the left is elected, then you’ll have a controlled default. To a certain extent it will be controlled.
At least there will be an attempt to manage it. If the leaders of the other European countries
are successful in frightening Greek population into reelecting the same clowns and thieves
that got Greece into this austerity mess, then also there will be default and exit,
but it will be chaotic, because what’s happening–as you’ve said, what’s happening in Greece is
the result of the austerity. Austerity prevents the government from having the revenue to
service the debt. Without growth, there is no conceivable outcome other than default. JAY: And then what? WEEKS: Well, I think that’s [incompr.] ability
to predict, but I would say that it’s conceivable Greece could default and stay in the euro.
And that would involve more of the same misery, only even worse. More likely, I think, is
that they’ll default and be abandoned. I think that in Germany and in the European Commission,
leaders are already planning for Greece to exit. I think they take the position that,
you know, the Greeks have been a problem for too long, they can’t solve the problem on
Germany’s terms, so if they default, then just push them out. Then what happens to the euro? Many people
say it will break up. I would say that depends on what the other weak countries do, ’cause,
see, Germany is one of the strongest economies in the world, so it’s inconceivable that you
can have a collapse of a currency which is being used by one of the strongest countries
in the world and a country which is growing–not very fast, and on the basis of beggar-thy-neighbor
policies, but still it’s growing. So I don’t think they will enter a period of very extreme
financial instability. Banks will go bust, particularly in Spain. Perhaps some of the
viewers have been reading or seeing reports about the banks in Spain. It’s almost certain
that they’ll need to be bailed out again. Then what will happen? Will the Germans say,
well, Spain has become too much of a problem too? It will be a very chaotic situation.
How chaotic and how it will be resolved I don’t know. We’ll really be in, you know,
uncharted territory, if I can use a cliche. JAY: Thanks for joining us, John. WEEKS: Well, thank you for having me. JAY: And thank you for joining us on The Real
News Network.

Maurice Vega

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