Last week the people of Greece and France voted against austerity. In the days that followed, the markets, global investors and speculators cast their ballot. They drove the euro and shares downwards and interest rates on government bonds upwards. For their part economically powerful European nations emphasised that their tough agreement with Greece could not be unpicked if it wished to remain in the Eurozone.
What happens next in Greece’s case is far from certain. As this is being written talks are proceeding between left wing minority parties and the two larger parties that had previously accepted the terms of a European and IMF bailout.
How any such coalition might succeed is hard to see, given the smaller parties and the electorate’s vociferous and sometimes violent rejection of any further cuts in the public sector, social services or government spending. So much so that a more likely scenario, if the newly elected factions of the left fail to achieve agreement with those they are courting, is that a second general election will be called, an even greater mandate given to the parties of the far left and far right and a slow motion economic collapse ensues.
Under such circumstances European and the IMF economic orthodoxy will be rejected, Greece will be forced to withdraw from the euro, there will be renewed pressure on Europe’s weaker mainly southern economies and the future of the euro and an EU of twenty-seven states will become uncertain.
With France, an economically powerful and important EU nation, it has yet to be seen how its new socialist President and his government intend arguing for both growth and austerity in a manner that meets the expectation of the electorate and stays within the EU Fiscal Pact signed in March of this year.
Elections in France and Greece have brought into sharp focus the challenge posed by cutting public expenditure as a way out of economic crisis and the way this contrasts with what voters want and what it is realistic to expect.
What the actions of increasingly angry electorates in Europe and beyond suggest is that in the absence of growth, there are limits to how far any government can go in imposing economic solutions even when agreed politically with other nations or international financial institutions. They also illustrate that the world may be starting to see the first signs of limits to national leadership, politics and parliamentary democracy in a world in which economic globalisation and interdependence has taken hold.
The Caribbean is not immune. As the Bahamas electorate demonstrated on May 7, they too are unhappy with high levels of unemployment and the absence of significant economic growth as well as increasing levels of crime. While the islands’ Prime Minister, Perry Christie, and his Progressive Liberal Party may have won a resounding victory, there are signs that like many other voters across the region, Bahamians want to see results within time scales that even the most committed politician may find hard to achieve.
This poses a problem. Most Caribbean governments are faced with the dilemma of cutting back on expenditure to address huge levels of accumulated debt and the high costs of debt servicing, and are being left with no margin for stimulating growth or to increase income to deliver still widely expected levels of social service.
As a recent paper ‘Update on the Jamaican Economy’ from the US think tank, the Centre for Economic and Policy Research (CEPR), points out, this situation is particularly stark in Jamaica. Even after a successful debt restructuring under the previous government, interest payments as a percentage of gross domestic product were still the highest recorded in the world in 2011. Debt servicing, the report notes, has taken up nearly fifty per cent of all budgeted expenditure over the last four fiscal years while health and education have only accounted for around twenty per cent.
What the CEPR report points to is the fact that indebtedness going back years has displaced public investments needed to restore normal growth and bring down persistently high levels of poverty and unemployment. Quoting the Jamaican Prime Minister on taking office as saying “in a time of crisis government must act to stimulate growth,” the report contrasts this with language used by the IMF after recent negotiations for a new programme, in which it suggested both the need for “a growth oriented environment“ and “significantly higher fiscal surpluses.“ This seems to translate in practice into politically difficult to deliver IMF proposals to reduce the public sector wage bill and further cuts in public expenditure.
Whether in Greece, Jamaica, France, the Netherlands, Ireland, the UK, St Kitts or elsewhere it is easy – party politics aside – to describe how countries and successive governments have arrived at the parlous economic state they now find themselves in and to demand polices that lead to much better financial management and control and economic recovery. What this does not do, however, is indicate the human and economic cost and particularly how the poorest, the well educated unemployed young or electorates can again have hope.
Last year the World Bank forecast in its regional annex on global economic prospects that it expected economic activity in the Caribbean to accelerate only marginally. However this was due in a large part to continued strong growth in the Dominican Republic and Haiti based on post-hurricane reconstruction and aid flows. It suggested that growth elsewhere in the region will be more subdued as remittances and tourism have yet to show signs of moderate recovery.
What this suggests is that weak Caribbean economic recovery taken with the growing likelihood of a further food price shock, continuing high prices of energy, and austerity in the region’s principle feeder markets for tourism, there will be continuing high levels of indebtedness for many years to come.
If Europe’s experience is any guide, austerity without growth is causing countries and their politicians to enter new, uncharted territory as the post cold war broad-based consensus on democracy, the markets, social expectations, traditional politics and the supremacy of the electorate is in danger of breaking down. This situation is exacerbated by a sense that the burden is not being shared equitably and the gap between the richest and the poorest in almost all societies is growing. These are matters that require new thinking.
Previous columns can be found at www.caribbean-council.org
