North Europe benefiting from Greece economic situation Academic

Press TV has conducted an interview with Jack Rasmus, a professor of political economy in San Francisco, to ask for his insight on the failure of Greece and its creditors to reach an agreement on bailouts for Athens.

The following is a rough transcription of the interview.

Press TV: Looking at the situation and the stalemate between Greece and its creditors, how much of this is their inability to reach comprehensive agreement as opposed to their unwillingness to see eye to eye?

Rasmus: Well, I think the origins of this problem have really a lot to do with the demands of the troika – troika being the European commission, the European Central Bank and the IMF. They essentially want to continue the old terms of the agreement as is and they are demanding that Greece and its government more or less concede to these old demands, which include what’s called labor market reforms.

So, that’s at the center of these demands. What are those? Those are: cut pensions, don’t raise the minimum wage, lay off more people from the government sector, some of which are hired back by the government, and generally, reduce the amount of income that the general population would receive in a more expansionary fiscal policy that the Greek government wants to implement and use that money to pay the interest on the debt.

Now, the source of this demand, this very difficult demand that’s been imposed on the Greeks, is the effort throughout the eurozone to stimulate economic growth by reducing costs, quantitative easing reduces the value of euro, reduces the cost, boosts European exports. There’s a parallel strategy going on to reduce labor costs within the eurozone. Spain has already done that. There are proposals for labor market reforms for Spain, Italy and France. So, it’s very difficult for the troika to let Greece off the hook on these labor market reforms and not impact its other efforts to reduce wage cost and boost exports elsewhere. So, that’s the real crunch here, the reforms they’re demanding of the Greeks and that the Greeks just can do it, they weren’t elected to do that.

Press TV: Professor, basically, you’re saying there is no guarantee that the troika’s demands are going to make the Greek economy more competitive.

Rasmus: Economy will not become more competitive, because most of the GDP that the Greeks may be able to generate will go to pay interests on this debt to the northern Europeans, mostly northern European bankers.

By the way, this huge debt increased, this 300-billion-dollars debt, over the years since 2001, the creation of the euro benefited Germany and these other northern European economies tremendously. They’re the ones who loaned the money to Greece and Spain and the periphery to buy the German exports; and then when the crises hit 2008-9, they did not have money to buy. So, they loaned more debt to the Greeks and the Portuguese and the Spanish to pay the previous debt. Then 2012, they had another recession and the same thing happened, so northerners in Europe have benefited greatly from this.

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