Predictably, the European Union responded quickly to yesterday’s violence in Southern Israel. “I condemn unreservedly all such acts of terror,” the bloc’s foreign policy chief Catherine Asthon said.
Will Ashton be issuing another statement today to denounce the Israeli military in similarly strong terms for murdering an infant in Gaza a few hours later? Or for ending a teenager’s life in the early hours of this morning? I’m sure that she won’t. The most we can expect is that she will call for “restraint” (that weasel word which diplomats have rendered meaningless through overuse).
And did she post something on her website expressing revulsion at how Israeli troops shot dead Sa’d al-Majdalwai, a 17 year old with a mental disability, also in Gaza earlier this week? Of course, she didn’t. Why? Because he was too low down in the hierarchy of victims to get noticed. And because the European Union applies different standards to the Israeli forces of occupation and the Palestinians who resist them. Violence by Israel is “regrettable” (or, in most cases, elicits no comment); violence by Palestinians is always categorized as “terrorism”.
A phony plea for understanding
Ashton may try to appear balanced — she has repeatedly criticized the expansion of Israeli settlements in the West Bank — but, in reality, there is little to distinguish her from former colleagues in the British parliament such as Lorna Fitzsimons. Who, you might ask? Fitzsimons was an elected representative of the Tony Blair-led Labor Party in Westminster between 1997 and 2005. After losing her seat, she took up a job running a propaganda outfit called the Britain Israel Communications and Research Centre (BICOM).
Fitzsimons had an opinion piece published by The Guardian in London this week, in which she sought to come across all reasonable. Purporting to be a big fan of mutual understanding, she patted her own back for organizing a “roundtable discussion” recently, where representatives of Benjamin Netanyahu’s Likud and the Palestinian party Fatah chatted amiably. She proceeded to illustrate how she has no interest in understanding the concerns of Palestinians by insisting “there cannot be a mass return of Palestinian refugees to [present-day] Israel.”
War criminal in London
BICOM’s team includes a “senior visiting fellow” named Michael Herzog. He is a retired brigadier-general from the Israeli army. During Operation Cast Lead, that relentless three-week assault on Gaza’s civilians in late 2008 and early 2009, Herzog was chief of staff to Ehud Barak, Israel’s defense minister. As he was involved in planning that operation and advising on strategy, Herzog must be held accountable for the war crimes committed in its execution. Next time he pops into BICOM’s London offices for a cup of tea and some blue-sky thinking, the police should be alerted and be ready to arrest him.
Herzog has at least done one good thing: he has proven that BICOM’s declared belief that Israel should display “considerable flexibility” (as Fitzsimons wrote in her Guardian article) amounts to waffle. In a new briefing paper for the center, Herzog contends that any future Palestinian state would have to be non-militarized but that Israel would maintain a long-term military presence along the Jordan River.
So while the Palestinians could have nothing more destructive in their arsenal than pea-shooters, the West Bank would remain surrounded by one of the world’s most powerful armies. That, it appears, is what the Israel lobby means by flexibility.
GAZA — Israeli air raids on Friday morning resulted in widespread destruction and damage to many government buildings in Gaza City. The airstrikes caused damage to the general employment office, the ministry of justice and the government information office, according to a government statement.
The government’s information office called on journalists to document the Israeli occupation crimes against Gaza and the Palestinian people.
Meanwhile, the general employment office said it will not be able to provide services to the public for now because of the severe damage the airstrikes caused to its building.
Israeli aircraft carried out ten airstrikes on Friday morning against various targets in Gaza. The airstrikes resulted in the killing of a Palestinian child and wounding of 18 people.
GAZA — The number of victims in the Gaza Strip in the latest Israeli occupation aggression rose to 15 martyrs and 40 wounded over the past 24 hours, the latest of whom were three victims killed while riding a motorcycle in the centre of Gaza City.
Palestinian sources said that Israeli aircraft fired at least one rocket at a motorcycle travelling on Road 30 in the centre of Gaza City ridden by more than one person including a child resulting in the death of three Palestinians.
Adham Abu Selmeyyah, spokesman of the emergency services in Gaza, said that three Palestinians including a two-year-old child died and a number of wounded people, including a woman were brought to hospital.
The victims were Dr. Monther Qureqe and his brother Mu’taz who is a commander affiliated with the Quds Brigades, the armed wing of the Islamic Jihad and his two-year-old son who were riding a motorcycle to hospital to seek treatment for the child.
Abu Selemeyyah said that Anwar Salim and Imad Abu Abdeh after an occupation aircraft targeted the motorcycle they were riding at the southern entrance to the Buraij refugee camp in the central Gaza Strip. Both of them are affiliated with the Quds Brigades.
PIC correspondent said that occupation aircraft Friday evening fired one rocket towards a group of residents in Abasan al-Jadida to the east of Khan Younis in the southern Gaza Strip, but no casualties were reported.
Occupation aircraft also targeted a motorcycle in the Sheikh Zayed neighbourhood in the northern Gaza Strip killing Samed Abed, who is affiliated with the Salahuddin Brigades.
Earlier the PIC correspondent reported that occupation aircraft targeted a group of people at a stone cutting factory near the Wafa hospital to the east of Gaza City wounding two people one of theme a 15-year-old child.
Muhammad Enaya (22 years) was killed and another person was wounded in a separate airstrike targeting a group of people in east Gaza City.
Two others, including a pregnant woman, were wounded in a separate airstrike.
This is in addition to the victims of the airstrikes that took place on Thursday evening.
TEL AVIV, Israel — At least eight Israeli citizens have been killed and dozens injured in two shooting attacks on buses near the city of Eilat, officials said Thursday.
Three militants armed with Kalashnikovs opened fire on a bus traveling from Beersheba to Eilat causing multiple injuries, Israel’s Channel 10 television reported.
Reports suggest that armed men opened fire from a car following the bus, which was traveling about 30 kilometers north of Eilat near Netafim in Israel’s south.
The Israeli army said five soldiers were among a total of nine people injured.
“This morning’s incident, near the southern Israeli city of Netafim, left four soldiers moderately injured and one soldier lightly injured,” a statement from the military said.
“Several people were injured as a result of an explosive device, detonated on an IDF force that arrived at the scene and drove over it,” the statement said.
Later, the military identified one of the soldiers as Moshe Naftali, 22, from Ofra.
“Naftali was killed as a result of a terrorist attack on his force while en-route to assist a civilian bus that was fired upon by terrorists,” the army said in a statement.
“Crossfire ensued between the force and the cell of terrorists.”
Assailants also attacked a second bus and a car soon after, an Al-Arabiya correspondent reported. Five people were killed, including one in the first bus attack, the correspondent said.
Israeli security officials said at least eight people were killed in all the attacks.
In a third incident, mortars were reportedly fired at Israeli forces near the southern border causing injuries, although initial reports were ambiguous about the origin of the artillery.
The Hebrew-language daily Yedioth Ahronoth, quoting foreign sources, reported that Jordan had delivered a warning based on intelligence that such an attack was likely.
An Egyptian official, meanwhile, denied that the attack originated in the Sinai.
Meanwhile, Israeli defense minister Ehud Barak said that “this terror attack originated from Gaza. We will exhaust all measures against the terrorists,” Israel’s Ynet news site reported.
Senior Hamas official Salah Bardawil rejected Barak’s accusations and warned that Israel was preparing to attack Gaza during Ramadan, adding that resistance would be swift if this occurred.
In an interview with Ma’an radio, Bardawil accused Israel of blaming Hamas and Gaza groups in order to deflect attention from its domestic economic crisis and security failures.
Security forces are still investigating the nature of the incidents and latest reports from Israeli radio suggest three of the attackers have been killed by Israeli forces, with the clashes now over.
A search is currently underway in Eilat to locate other suspects in the attack, as the police presence across Israel intensifies.
Twenty-five people have been taken to Eilat hospital, Arabic media reported, and emergency services were immediately deployed to the scene of the attacks.
The identity of the attackers is unknown.
Panetta and the Defense Budget
The invitation came to me from Secretary of Defense Leon Panetta’s public affairs office to attend a “conversation” with Panetta and Secretary of State Hilary Clinton at the prestigious National Defense University in Washington. Although I knew it wasn’t me they wanted to talk to, I sat in the audience to hear Panetta and Clinton in action, especially on the subject of my prime interest: the defense budget.
The “conversation,” it turns out, was with Frank Sesno, the former CNN personality and currently director of George Washington University’s School of Media and Public Affairs. Sesno took the “conversation” assignment seriously; although he boldly said that it was important to “ask the tough questions” – just like a journalist – he did no such thing. Lofting over shallow dinner-talk queries, Sesno chummed it up with Panetta and Clinton and permitted them to say anything they wanted without fear of challenge.
Clinton tended toward impromptu speeches on whatever she was asked about; well articulated and forceful, much like she did as a senator at hearings where, rather than conduct oversight asking informed questions and following up, she would express her political points and neither seek nor reveal any new or deeper information.
Panetta was more subtle and single-minded. Although he comes from the same political background – White House insider and Congress – his answers were shorter and more softly stated, but they were directed at one and only one objective: defending the Pentagon’s budget.
Sesno started the “discussion” asking about budget cuts beyond the $350 billion the Pentagon has already committed to over the next 10 years, saying “What’s really at stake?” Panetta whacked the softball question hard: “Very simply, it would result in hollowing out the force,” and, “It would break faith with the troops and with their families,” and, finally, “It would literally undercut our ability to provide for the national defense.”
The bureaucratic moguls at the Pentagon, who currently preside over the largest defense or non-defense agency budget since the end of World War II, must have been delighted. After four years of sometime tough-guy Robert Gates, who fired senior officials for not toeing his line, DoD’s high spenders must be elated to have at the top someone who has leaped so quickly and with such eagerness to defending their agenda.
The $850 billion cut that Sesno was referring to does sound like a lot – if you are ignorant about the background and budget history. He offered no pushback and did nothing to probe Panetta’s budget preserving agenda, to question Panetta’s assumptions, and or even seek the data behind them.
Things didn’t get any better when Sesno allowed the audience a grand total of one question on DoD budget issues. The individual Sesno selected asked about funding for foreign language training. Panetta dutifully said it was important and that he wanted to look for “creative ways” to protect it. Clinton gave a speech about it, and the remaining 99.9 percent of the national security budget went unaddressed.
Instead of this feather-stroking chitchat, consider the following:
If the Pentagon’s “base” (non-war) budget were to be cut $850 billion, or so, over ten years, it would go down to about $472 billion annually, the approximate level of the base DOD budget in 2007. (This, not coincidentally, is about the same level of a new round of defense budget cutting hysteria circulating in Washington in response to a just released memo from OMB Director Jack Lew.)
Using the Pentagon’s “constant” dollars that adjust for the effects of inflation, that $472 billion level would be more than $70 billion higher than DOD spending was in 2000, just before the wars. Over ten years, base Defense Department spending would be almost three quarters of a trillion dollars above the levels extant in 2000. And, none of the additional monies to be spent on the wars would be eliminated.
At $472 billion per year, the Pentagon budget would be almost $40 billion more than we averaged, in inflation-adjusted “constant” dollars, during the Cold War when we faced an intimidating super-power, the Soviet Union, its Warsaw Pact allies and a hostile, dogmatically communist China.
At the 2007, 472 billion, level, our defense budget would remain more than twice the defense spending of China, Russia, Iran, Syria, Somalia, Cuba and any other potential adversary – combined.
The problem is not money. Under this so-called worst case scenario, the Pentagon would be left quite flush with money, plenty of it in historical terms.
The problem is that the Pentagon, as it exists under its current leadership, is incapable of surviving with less money. They quite literally do not understand how to face a future where the DoD budget exceeds any and all potential enemies by a multiple of only two.
Many – including Obama’s bipartisan 2010 National Commission on Fiscal Responsibility and Reform, a task force put together by congressmen Barney Frank (D-Mass.) and Ron Paul (R-Texas), yet another commission headed by former budget leaders Sen. Pete Domenici (R-NM) and OMB Director Alice Rivlin, and two alternative budget proposals from Sen. Tom Coburn (R-Okla.) – have itemized how to save about $900 billion from the national defense budget. The political landscape is littered with competent recommendations to remove many of the thick layers of hydrogenated fat from the Pentagon.
These proposals hit on many of the same soft spots in the DoD budget, such as the unaffordable, under-performing, years behind schedule F-35 Joint Strike Fighter. The implied consensus on such ideas and on the approximate amount (roughly $900 billion) suggest that the slightly lesser $850 billion in Pentagon savings is not “doomsday” (Panetta’s word) but quite endurable-and would actually leave DoD quite flush with cash.
But, it is unthinkable to Secretary Panetta, as it is to those who perform the enabling chitchat.
Winslow T. Wheeler is director of the Straus Military Reform Project and editor of “The Pentagon Labyrinth: 10 Short Essays to Help You Through It.“
Israel’s price tag campaign is not waged only by the settlers in the West Bank; it is also waged against the people of Gaza. It isn’t exactly clear what the Gaza Strip is paying the price for. In contrast to Israeli propaganda, people are killed in Gaza all the time. This has been a bloody week. An 18 year old mentally disabled man was shot to death on Tuesday, another young man was shot in the leg on Tuesday. Perhaps the price must be paid simply for existing.
Overnight Israeli warplanes pounded Gaza. Nine people have been murdered in Gaza since yesterday. 13-year-old Mahmoud Abu Samra was one of the killed, he and 18 others were injured in one bombing attack in Gaza. The Abu Samra family lives near the former intelligence services headquarters in Gaza City. Their house was destroyed by an Israeli bomb last night at 12:30 A.M. Their house was completely destroyed, one of their neighbors houses was also destroyed, one more, heavily damaged. Thirteen people from three families live in these houses. All of these families are refugees, expelled from their homes in 1948, and now, in a repeat of history, once again their houses are destroyed. When we arrived family members were picking through the rubble, trying to salvage what could be salvaged.
The Abu Samra house was completely destroyed. All that is left standing is a bathroom with the door torn off, a sink, and a broken mirror in it. Mahmoud is dead, the latest causality in the Israeli assault on Gaza. Neighbors and relatives pick through the remains. A shattered computer monitor sits on a pile of rubble. Israel bans the import of concrete into Gaza, so the house will probably live on in another house after the rubble is recycled. Mahmoud is dead, he was buried today.
Next to the Abu Samra house is the Al Helal Sporting club. It is one of the few places for young men to hang out in the neighborhood. When the bomb hit it was packed with young men trying to escape the heat, entertaining themselves playing football and watching TV. Many of the injured were young people from the neighborhood at the club.
We spoke to Seham Awad, a forty five year old mother of two. She and her nephew were picking through the rubble. Thankfully, her son is away at university studying, her daughter is married and no longer lives with her. Her ex-husband is in an Israeli prison, seven years into a twelve year sentence. She is unemployed and lives on charity and help from her neighbors. She is a resourceful woman though, her backyard, maybe 25 square meters, has been turned into a garden. It is overhung by a shattered trellis for passion fruit vines. She grows vegetables on the rest of her land, in old tires that have been turned into planters, on every square meter of land vegetables grow. Her house is small, only two rooms, now both destroyed.
Her house was also destroyed during Cast Lead, she received no help rebuilding, only some mattresses and household supplies. She lives without windows; only sheets cover the holes in the walls that would be windows. Perhaps, this was lucky last night, there was no shattered glass to cut her. After the attack, she slept in the garden, on mattresses placed in the back corner. She is undefeated, after her house was destroyed in Cast Lead she rebuilt as best she could, concrete blocks, an asbestos and tin roof, and no windows. She expected that her house would be destroyed again, she was right. As she said, “I expect little from life, I planted this tree, now it is big, it provides shade, that is enough.” When asked what she would do now, where she would go, she said, “I will stay here, I will rebuild again as best I can, where else can I go?”
Her neighbors, the Abbas family was not so lucky. Their father, Abu Akmed was injured in the bombing. This family too is picking through the rubble, praying for their father. Their home, heavily damaged was all that they had. In the back a horse still lives in a small shed. Abu Ahmed, like most men in Gaza, had no job–they’re just simple refugees trying to rebuild their lives. Nine people crammed into a small concrete block house, now, mostly destroyed. Out their front door you can see the old security headquarters in Gaza, heavily bombed during Cast Lead and now abandoned.
Behind the Abbas family lives Hajjer Abu Duwani. She is a fifty five year old mother of twelve. She is a small woman; she looks older than her years. She doesn’t really have a house, just two tin sheds that she lives in. A chicken coop takes up one end of her land; on the rest of it she tries to grow vegetables. She has no job; she depends on the help of her children to live. Shrapnel from the bombing hit her. She has an ugly hand sized bruise on her leg, another bruise on her arm, and her head was cut with shrapnel. She is happy, at least she is alive, Mahmoud, her thirteen year old neighbor is dead, the houses of her other neighbors destroyed.
The Cases of Spain, Greece, Ireland and Portugal
To understand the situation in the countries at the periphery of the European Union, four countries within the Eurozone, Portugal, Ireland, Greece and Spain, we have to understand the political context they have in common. All of them were governed by fascist or fascist-like dictatorships (Spain, Portugal, and Greece) or by authoritarian right-wing regimes (Ireland) for most of the period from the late 1930s or early 1940s until the late 1970s. This history is usually ignored in analyses of these countries.
This shared history, however, has determined the nature of their states, a critical variable for understanding countries’ economic behavior. Their states have been very repressive. Even today, these countries have the largest number of policemen per 10,000 individuals in the EU-15. Another shared characteristic is their very low level of state revenues and their highly regressive fiscal policies. The revenues to the state are much lower than the EU-15 average: approximately 34% of GNP in Spain, 37% in Greece, 39% in Portugal, and 34% in Ireland, compared with the EU-15 average of 44%, and compared with 54% in Sweden – the EU-15 country where the left has governed for the longest period. The low state revenues result from extremely regressive policies. The super-rich, rich, and high-income upper middle classes do not pay taxes at the same level and intensity as those in most of the central and northern EU-15 countries – a consequence of a history of government by ultra-right-wing parties. Of course, progress has been made since the dictatorships ended. But the dominance of conservative forces in the political and civil lives of these countries explains why their state revenues are still so low.
As a result, the public sectors in Portugal, Ireland, Greece, and Spain are extremely underdeveloped. And their welfare states are poorly funded and very limited, including their public transfers (pensions) and public services (medical care, education, childcare services, homecare services, social services, and others). Indicators of this are many. One example is public social spending as percentage of GNP, which is lower in these countries than the EU-15 average (27%): Spain, 22.1%; Greece, 25.9%; Portugal, 24.3%; and Ireland, 22.1% (compared with Sweden, 29.3%). Another example is the percentage of the adult population working in public services of the welfare state – again, lower than the EU-15 average (15%): Spain, 9%; Greece, 11%; Portugal, 7%; and Ireland, 12% (compared with Sweden, 25%). In fact, Greece’s percentage is three points higher, 14%, because it includes services for the military, (which represents approximately 30% of public employees).
The specificity of the political regimes
Thus, for these four countries, not enough attention has been paid in the economic literature to the consequences of being governed by ultra-conservative forces. The influence of such forces has been enormous. It is also important to emphasize that the conservative forces in these peripheral countries are different from those in northern and central EU-15 countries. They do not belong to democratic traditions since they are the inheritors of either fascist or authoritarian regimes. Even today, after almost 30 years of democracy, such forces continue to be very influential in the four states, even when the states are governed by social democratic parties. As just one example, Spain’s Supreme Court has taken Judge Baltasar Garzon, who used to be a member himself of the Court, to trial for daring to inquire about crimes committed by General Franco’s fascist regime. It is not fully comprehended outside Spain just how influential the ultra-right-wing forces still are within the Spanish state. They dominate political culture in many different ways, including control of the major media. There are no major left or left-of-center media in Spain, or in the other countries in this group.
The domination of the state by ultra-conservative forces has many consequences besides their low level of state revenues, their regressive fiscal policies, and their underdevelopment of the welfare state. Labor income, as percentage of national income, has declined since 1992, when policies were implemented (including by social democratic governments) in preparation for entering the Eurozone. This income decline has occurred more rapidly in Portugal, Ireland, Greece, and Spain than the EU-15 average, and is particularly accentuated in Spain, with a decrease from 70% to 61% of national income – despite an increase in the percentage of working adult population.
As noted, a consequence of domination by conservative forces, considerably limiting the public reforms approved and implemented by social democratic governments from the early 1980s onward, is regressive fiscal policies. As a result of these policies, the impact of state interventions on income redistribution has been very limited. For example, in Spain, as late as 2009, the level of poverty (60% of median income) declined only 4 points after implementation of state interventions (public social transfers): from 24% before to 20% after transfers. The EU-15 average decreased from 25% to 16%. Sweden’s poverty rate fell from 27% to 13%. The decline in poverty rate resulting from public social transfers in Spain is the lowest in the EU-15. Another indicator of the limited redistributional impact of state interventions is that the Gini coefficients in all four countries are higher than the EU-15 average (29.2). Spain’s Gini coefficient is 31.3, the same as Ireland’s; Greece’s is 34.3; and Portugal’s is the highest at 36.8.
How the crisis has been building up
Another characteristic of this group of countries is the acceptance by the governing social democratic parties of most of the neoliberal policies pushed by the EU establishment. This acceptance has been generalized among the social democratic parties of the European Union. Actually, these parties were part of the consensus in developing neoliberal policies (usually referred to as the “Brussels consensus,” the European version of the “Washington consensus”). As part of this consensus, both conservative-liberal and social democratic governing parties have been reducing taxes, particularly for the top income brackets. It was none other than Spain’s socialist candidate in the 2004 election (and later prime minister), Jose Luis Rodriguez Zapatero, who promised to reduce taxes if elected, saying that lowering taxes was a cause to be promoted by the left. The major economic thinker of Spain’s socialist party at that time was Jordi Sevilla, an economist who wrote in his book The Future of Socialism that “the left had to stop raising taxes and increasing public expenditures” – this said in the EU-15 country with the lowest state revenues and poorest welfare state.
The tax reductions over the past 15 years have led to a structural public deficit that was disguised by the fast economic growth created by the housing bubble, responsible for the banking–real estate–construction industry complex at the center of the bubble. When the bubble burst, and the economy came to a halt, the structural public deficit appeared in all its intensity. The public deficits in Portugal, Ireland, Greece, and Spain were the result of declining state revenues, not expanding public expenditures. This is why the public policies of these governments are profoundly wrong. They have been cutting public spending, assuming, incorrectly, that the cause of public deficits was an exaggerated growth of public expenditures.
Arguments used to justify cuts in public expenditures
The slogan now being used to justify these cuts is: “The country has been living beyond its means.” Major political figures in the four countries claim that their welfare states are larger than they can pay for. But the data show otherwise. In Spain, for example, the GNP per capita is 94% of the EU-15 average, but public social expenditure per capita is only 72% of the EU-15 average. If it were 94%, the Spanish state would have 66,000 million more euros than it does today. So, Spain has the resources. The problem is that the state does not collect them, because its fiscal policies are so regressive and fiscal fraud is widespread among high-income groups and economic and financial corporations. Actually, banking in Spain is the primary entity responsible for fiscal fraud. Mr. Botin, the country’s major banker (president of Santander Bank, the third most profitable bank in the world, after two Chinese banks), was discovered this year to have 2,000 million euros in a Swiss bank account – not declared until two whistleblowers at the bank went to the press. Such fraud is general practice. The tax inspectors of Spain’s Ministry of Economy estimate there are 88,600 million euros that the state does not collect because of tax fraud.
How and why the crisis arose
Before the financial crisis there was an economic crisis, largely the result of the decline in labor income as percentage of total national income. The neoliberal policies developed since the 1980s (accentuated over the past 15 years, and carried out by governments of various political persuasions, including social democratic, in Spain, Greece, and Portugal) have had a strong impact on income distribution, accelerating the concentration of income in the high income brackets. The decline of labor-derived income diminished the purchasing power of the popular classes, forcing them into debt in order to maintain their standard of living. And credit was relatively easy to obtain, because house values were rising and provided a means of borrowing from banks by putting up homes as security. The growth of the credit sector (and of financing) was based on the decline of labor income. But the decline of labor income was creating a major problem for demand and limited profitability in the economy.
With this limited profitability in the productive economy, the super-rich, rich, and upper-income middle class invested in sectors with higher returns, especially in real estate. The deregulation of banking (and deregulation of zoning laws) during the 1990s led to a real estate bubble, based on the complex of banking, real estate, and construction industries. In Spain, this complex was the main motor of economic growth and was supported by both central and local authorities, since local authorities were primarily funded by property taxes.
Stimulating the growth of housing construction was the influx of immigrants, with the immigrant population increasing from 4% to 10% of the population in only 10 years. Housing construction reached 10% of GNP, and this sector produced the most (but very low-paid) jobs. The Spanish “miracle” of job creation was based on large investments in a speculative sector of the economy. And it was funded with debt. This is the cause of the enormous private debt in Spain, which was facilitated by introduction of the euro – much more stable in the economy than the national currency it replaced. Introduction of the euro dramatically increased the size of the financial sector in the four peripheral Eurozone countries. When the bubble burst, the whole credit economy came to a stop.
The political origins of the public debt
In the four countries, there has been an alliance between the upper income brackets (the super-rich, rich, and upper middle class, whose taxes have been reduced in the past 15 years) and the banks, on the one hand, and the state, on the other. A fruit of this alliance was the reduction in taxes that created the structural public deficit, masked by the economic growth within the bubble.
The decline of revenues to the states (the consequence of tax cuts) forced the states to borrow from the banks, where the rich deposited the money saved due to reduced taxes. The indebtedness of the states and the need to borrow were clearly related to the reduction of taxes. When the economy came to a stop as the bubble burst, the structural public deficit became apparent. Public deficits as percentage of GNP, increased substantially in all four countries from 2007 to 2009 as a consequence. Spain went from a surplus of 1.9% of GNP in 2005 to a public deficit of 11.1% in 2009. Greece went from a deficit of 6.4% in 2007 to 15.4% in 2009, with Ireland moving from 0% to 14% in the same period. In all of them, rapid growth of the public deficit was based on the extremely regressive nature of state revenues. With most taxes based on labor income and consumption, when employment declined, unemployment grew, and consumption declined, the public deficit escalated dramatically.
Solutions that are never considered
The neoliberal response to this situation, which entails cuts in public expenditures, is making the situation worse because it reduces demand. The trade unions have accurately described neoliberalism as the ideology of banks and large employers. The major media support this doctrine, based more on faith than on evidence. At the root of the problem is class power and its realization through the state.
If Spain implemented the same fiscal policy as Sweden, the Spanish state would take in 200,000 million more euros than it now does. With those millions of euros, it could create 5 million new jobs (particularly in the underdeveloped welfare state services, such as the national health service, educational system, childcare services, and other social services). If one in every four adults worked in such services (as occurs in Sweden), instead of one in every ten adults (as occurs now in Spain), Spain would create 5 million more jobs, eliminating unemployment: 5 million is more or less the number of people currently unemployed in Spain.
A second point is that the fiscal stimulus applied by most of the governments in this group of countries in 2008 was basically tax cuts and transfers. Only a miniscule part of the stimulus went to creating jobs (through investment by local authorities). Stimulating the economy through the creation of jobs has not occurred in any of these countries. Moreover, reduction of the deficit is achieved by cutting public expenditures, not by increasing taxes. The European Federation of Trade Unions has proposed alternative ways of reducing the deficit, primarily by increasing taxes (reversing the tax reductions of the past 15 years). Class power, however, is the most potent opposition to these alternative policies. A manufacturing worker in Spain pays taxes estimated at 74% of the taxes paid by a manufacturing worker in Sweden. The top 1% of income earners in Spain, however, pay only 20% of the taxes paid by the top 1% in Sweden. This is what explains the enormously regressive fiscal policy in the four peripheral EU-15 countries and the enormous resistance to change by their dominant classes.
The problem of the public debt is thus basically a political, not an economic or financial one. The current situation is untenable because Europe’s dominant classes and their allies, the EU leadership (“the troika”: the European Council, European Commission, and European Central Bank), are trying to reduce the power of labor using the argument of “pressure from the financial markets” – the aim being to get labor to accept the huge sacrifices that the dominant classes have wanted for many years. In Spain, for example, the socialist government is cutting public social expenditures, which, besides adversely affecting economic growth and reducing level of demand, is hurting the popular classes. The parties to the left of the governing socialists have clearly shown that for each cut in public social expenditures, the government could obtain even larger revenues by selectively increasing taxes, which would not affect taxes for the majority of the population. Moreover, they have shown that the revenues obtained with those taxes could create jobs in the underdeveloped public sector, especially in the welfare state.
Another issue is that, at this time, no major force on the left has called for exit from the euro. An explanation for this is that Europe has always been a point of reference for progressive democratic forces. In Spain, for example, under the fascist dictatorship, Europe meant liberty, democracy, and the welfare state. The attraction of Europe is now waning, though not very rapidly. Because of this, most of the debate centers on correction of the fiscal regressiveness of the state and development of expansionary policies as a way of stimulating economic growth and job production. Sectors of the left in Spain believe this is not possible, pointing to the Mitterrand case as an example of how one country cannot follow expansionary policies. This needs to be shown as wrong, although expansionary policies at the European level would help a lot. This is unlikely to occur at this time, however, given the control of the major EU institutions by neoliberal dogma.
The indignados movement
Meanwhile, a new movement has appeared which has surprised everyone. Initially led by the young unemployed, it has attracted enormous support from the majority of the population. Its primary focus is on denouncing the absence of democracy, in Spain and elsewhere in Europe, showing how governments are making decisions not mandated by the population. This movement is going to the root of the problem: the nature of democracy and who it is that democratic institutions are representing. Of course, in Spain, the government is worried about this movement. The candidate of the governing socialist party, hoping to succeed Zapatero (the Spanish president with the least popular support during the democratic period), has called for increased taxation of the bankers and the banks to help resolve the fiscal problems of the state. This is important because the proposal is a response to the public outrage directed at banking and the wealthy. The financial and industrial bourgeoisie are seen as using the “pressure of the financial markets” as a way of getting what they have always wanted: to weaken labor. And what is really threatening to the establishment is that all the polls show enormous sympathy for this popular movement, including among large sectors of the conservative parties. We will see what happens next.
Vicente Navarro is Professor of Public Policy, the Johns Hopkins University and Director of the Public Policy Program jointly sponsored by the Pompeu Fabra University (Barcelona, Spain) and the Johns Hopkins University (Baltimore, MD)
The work of Marta Tur, Miquel Campa Sole and Maria Allwine in the preparation of this article is gratefully acknowledged.