Eurozone in Deflation
A Tale of Two Approaches to Crises
By Jacob Hopkins
January 25, 2015 may well become known as one of the defining dates in the history of the Eurozone. Greece—a country with a frightening load of debt, dying economy, and 25% unemployment rate—gave power to the vehemently anti-austerity SYRIZA party in SNAP elections. The Greek people’s decision has been making waves all over Europe ever since new Prime Minister Alexis Tsipras was sworn into office. He is been demanding new debt negotiations with pro-austerity leaders led by German Chancellor Angela Merkel, whose own country had almost two thirds of its debt forgiven in the 1950s. In recent weeks she has been pushing back against any such proposal, insisting that the German people are in “solidarity” with the Greek people, but that all the spending controls that have been crippling the Greek economy in recent years must remain in place.
Though it has been the primary focus of press coverage in recent weeks, the Greek economy is not the only challenge facing the Eurozone. After a long period of consumer prices rising at slower rates, the Euro has officially slipped into the territory of deflation. And while at first glance it might seem that lower consumer prices might be good for a European economy stagnating, it also means that debt increases in value with every passing day. Furthermore, research has shown that in periods of deflation, consumers are much more likely to delay purchases, thus depressing whatever little economic growth the European economy has been able to muster. At this point even the European Central Bank—one of the champions of austerity—is talking about beginning quantitative easing to stimulate the economy.
The Eurozone chose to walk down the path of austerity, leading directly to the deflationary hell in which their economies now stagnate.
This economic crisis contrasts starkly with the relatively good economic signs that the United States has seen in recent months. The United States’ economy grew at a rate of 5 percent in the third quarter of the year and is currently riding the longest streak of private sector job growth in our history at 58 months in a row. It appears as if the American recovery is finally gaining steam, whereas Europe is attempting to tread enough water just to stay afloat. The two developed economies are on two incredibly different tracks, laid at the start of the crisis. The Eurozone chose to walk down the path of austerity, leading directly to the deflationary hell in which their economies now stagnate, whereas the United States chose the path of stimulus and government intervention that has now created its saving grace.
The 2008 elections in America might have been one of the most fortunately timed in history. The unpopular Bush presidency, Obama’s charismatic persona, and the economic crisis formed the perfect storm that allowed for a left wing wave election in America. Coming into full power mere months after the economic crisis left the economy on its knees, the leverage the Democrats had in Congress allowed it to pass a stimulus package that responded swiftly to the crisis, creating jobs and setting up America for the path to recovery. On the other side, the European answer to the problem was found in cuts to social programs and the public sector. Such a response, the public was told, would lead to untold prosperity once the crisis ended. However, nearly eight years after the crisis began, Europe remains crippled while their friends across the pond prosper. Despite great movements in the public, European leaders like Merkel still stand reciting the failed promises of austerity, while elections are set to sweep across Europe this year.
In England, the left is setting itself up for an attempt to take out Prime Minister David Cameron, a long proponent of austerity, in the May elections. Spain, with its economy in shambles, is preparing for elections in November in which Podemos—another left-wing anti-austerity party—hopes to replicate the results of the recent elections in Greece. No longer can pro-austerity leaders deny that the public is seeking a new solution. A bolstered left is seeking not only for an end to the austerity measures but also for increased spending in the public sphere. The left, fed up with the neoliberal revolt that swept across the developed world in the 1980s, finally sees its chance to fight back. The crisis in the Eurozone is no longer a simple fight over economic growth but over government’s role in the world.
One might argue that the elections in Greece are not only significant for the Eurozone and those with investments in Europe, but for left wing policies across the globe. Greece is likely to be just the first nation in a string of many that, for the first time in a generation, elect parties that truly want to expand the role of the public sector in the economy. It seems as if the left is finally recovering much of the swagger it lost when neoliberal leaders like Ronald Reagan and Margaret Thatcher defeated them on the world stage. For a left no longer on the defense, Europe will provide a stage on which to win the ground it lost over thirty years ago.
The feeling of the left worldwide was caught in SYRIZA’s simple victory tweet on election night: “Hope has won.”