Austerity Produces Extremism

From Matt Stoller at Naked Capitalism:

Austerity doesn’t just lead to unemployment and misery. If it goes on long enough, it will inevitably lead to the emergence of “swamp thing” extremists into positions of power. Take the situation in Greece, a country which until recently was a wealthy Western democracy with a relatively stable political system. After five years of depression, voters in Greece just fired their equivalent of the Democrats and Republicans, and replaced them with anti-bailout groups, mostly on the left (Syriza and Communists), but also with the neo-Nazi group Golden Dawn on the right.

This should be a wake-up call to political elites globally, because Greece could simply be the start of a trend of collapsing centrist politics and the rise of dangerous political actors. 7% of Greeks, including a substantial number of the police, voted for a fascist anti-immigrant party whose platform is a mixture of economic populism and xenophobic racist lunacy. 21 Golden Dawn members were elected to Parliament. Golden Dawn political machine includes roving gangs of thugs that routinely beat up immigrants, and its political platform includes placing mines on the border between Greece and Turkey to prevent immigrants from coming into the country.

This is what austerity produces – extremism.

I had been planning a post following PKrug‘s message last week admonishing Tea Party conservatives to learn from Europe the disastrous effects of fiscal austerity. Fortunately, Stoller uses Greece as an object lesson.

Meanwhile:

Hungarian Premier Viktor Orban’s negotiating hand going into bailout talks with the International Monetary Fund has been weakened after the economy slumped the most in three years, said economists from London to Budapest.

Hungary is headed toward joining the Czech Republic and Romania among eastern European countries in recession as the euro region’s debt crisis saps demand for their exports. That adds to pressure on Orban to obtain aid from the IMF and limits his ability to protect the flat personal income tax, a cornerstone of his economic policy, said Neil Shearing, chief emerging markets economist at Capital Economics in London.

Previously.

From William K. Black at Benzinga:

The New York Times’ reporters covering Europe’s financial, social, and political crises continue to channel Berlin and demonstrate an ignorance of economics so profound that it rivals the Wall Street Journal’s editorial writers and columnists…

Economists have known for roughly 75 years that adopting austerity in response to recession or depression will make the economic crisis grow and last far longer. Austerity is to economics as bleeding was to medicine…

I have explained in prior articles while similar demands for austerity from the IMF pursuant to “the Washington Consensus” enraged the peoples of Latin America and caused them to elect leaders who resist austerity, privatization, and the assault on working class wages. The Berlin Consensus has had a more inconsistent result because the governments of the periphery that imposed austerity have often been led by parties of the left…

Consider this passage: “[Tsipras] said he would not veer from pledges to repudiate terms of Greece’s bailout that forced wrenching hardship on average Greeks, a stance that may lead Greece’s lenders to withhold further aid and set off a default.” Who are “Greece’s lenders?” The EU, the ECB and the IMF (collectively, the troika) are Greece’s preeminent lenders. Why would the troika, in the midst of a Great Depression in Greece, impose austerity measures “that forced wrenching hardship on average Greeks” (emphasis on the word “forced”)? Forcing wrenching hardships on average Greeks during a Great Depression is not simply economically suicidal – it is a morally depraved action against fellow citizens of the “ever greater union” of Europe…

The passage reveals Berlin’s (and Washington D.C.’s) real fears – massive unrecognized losses at the world’s largest banks that have been hidden by accounting games. Spain, Portugal, Italy, and Ireland are beset by massive unrecognized losses that would render many of their banks and many foreign banks insolvent or capital-impaired.

This is an incredibly damning article and I suggest you read it. The writing is on the wall: Greece will not be allowed to exit the Euro and Germany will stop insisting on austerity, not because it is destabilizing governments or that it tortures citizens, but because default of member countries spells doom for the world’s TBTF banks.