By William K. Black

Bloomington, MN: January 18, 2015

Even when the New York Times seems to think it is trying to open minded about the troika’s infliction of austerity on the peoples of the eurozone, its reporters are infected by the bizarre notion that austerity was the economically sensible response to the Great Recession. Even more bizarrely they are infected with the view that more austerity is the sensible response to the worse-than-Great Depressions that austerity inflicted on Greece, Italy, and Spain. The latest installment is entitled “Party Leader’s Populist Pitch in Greece Could Pay Off.”

The article does not explain what a “populist pitch” is (other than alliterative string of four plosives in a single title). The mainstream press uses “populist” as a pejorative term synonymous with class warfare against the wealthy that ignores economic reality.

The article runs immediately off the road and flips over in a ditch with this delusional description of what Greece received for agreeing to the troika’s demands for austerity. The NYT describes the troika as providing “the financial assistance necessary to keep [Greece] afloat.” Think about that phrase for a moment. Most people would interpret it as indicating that the troika is providing substantial funds to the Greek government. That is not correct. The EU provides limited funds (around 1% of the Greek budget) to Greece under a general program of providing funds to EU nations with relatively low per capita GDP that was adopted decades before the crisis.

The troika overwhelmingly provides loans to Greece. The troika rages repeatedly about what it claims is Greece’s excessive debt. The troika is shocked that extending more debt (rather than aid) to a nation it claims is in disaster because of its excessive debt levels has not transformed Greece into a neoclassical paradise. The troika loans roll over existing Greek debt or bail out banks (and their owners and creditors). Many of those banks, owners, and creditors are foreign. The troika will make money on its loans to Greece unless the terms of those loans are renegotiated or Greece defaults on the loans. The horrific price to Greece of the troika’s loans is brutal austerity.

But you won’t learn that from the NYT article about Alexis Tsipras, the leader of the Syriza Party, which is leading in the polls for the snap election Greece is about to hold.

“[T]he promises [Tsipras] has made are enough to suggest that Greece under his leadership would take a sharp turn from its direction of the past five years, when it has grudgingly adhered to European insistence on deep budget cutting in return for the financial assistance necessary to keep it afloat. *** [A]fter years in which ordinary Greeks have felt little if any benefit from harsh austerity policies, and with the government still unable to perform basic tasks like tax collection, he is offering voters a populist vision in which they come first. *** At a time when Italy and France, among other countries, are also questioning the German-led austerity orthodoxy, Mr. Tsipras could play a vital role in shaping the European debate. He is being watched carefully across Europe for signs of whether he really has moderated, or is just toning down his language to avoid scaring middle-of-the-road voters.”

If the NYT believes that “populist” means putting “ordinary” citizens “first,” then why doesn’t it celebrate populists rather than treat them as dangerous? The average reader of these passages would believe that the “orthodox” economic view was that austerity was the sensible response to a Great Recession. The opposite is true, as Paul Krugman has explained over a dozen times since 2008. The NYT team that covers EU economic stories apparently has to swear a blood oath never to read Krugman or learn economics.

The Greek Confidence Fairy

Paul Krugman has made infamous the EU faith-based economics claims about the mysterious “confidence fairy” that is always just about to appear and make austerity a success. The austerity theory asserts that inadequate demand for goods and services is best addressed through further reducing government demand for goods and services, large scale firing of workers, and slashing wages. Reducing government spending is supposed to increase “confidence,” which is supposed to be the key to recovery. If firms are confident they will hire more workers and produce more goods and services and if consumers are confident they will buy the goods and services. Slashing wages makes the nation in recession more competitive, allowing an export-driven recovery.

The European Commission’s Occasional Papers No. 61 “The Economic Adjustment Programme for Greece” (May 2010) uses the word “confidence” 19 times.

“2. Importantly, the authorities are fully aware of the challenges, and they strongly own and support the programme policies and objectives. They realize the seriousness of the situation and the need for bold measures are needed [sic] to help Greece out of the current situation. Their resolve to restore market confidence through large, frontloaded fiscal consolidation measures is strong,”

The quoted paragraph demonstrates a fact about Greece and the European left that was critical to the rise of Syriza. The EC wrote that paragraph in 2010 – when George Papandreou was Greece’s Prime Minister, head of the Greek Socialist Party, and President of the Socialist International. If “the [Greek] authorities … strongly own and support the [austerity] programme policies and objectives” then the socialists had lost their souls, their minds, and their spines.

The same EC document contains the Papandreou administration’s official response to the EU austerity program, the May 3, 2010, “Memorandum of Economic and Financial Policies.” The European Commission’s statement that the Greek Socialist Party “strongly own and support the [austerity] programme policies and objectives” is amply demonstrated by the document, which launched a war on the Greek people and Greek workers and retirees in particular. The Socialist Party’s rationale for that war on the Greeks was ultra-right-wing neoclassical economics. The result was a Great Depression more severe than the Greece suffered 80 years ago.

“II. KEY OBJECTIVES AND THE OUTLOOK 5. The main objectives of the program are to correct fiscal and external imbalances and restore confidence. Without regaining confidence in the sustainability of fiscal and economic developments, the cost of funding the economy is bound to stay high if not increase further. The fiscal and the external imbalances need to be corrected. Facing these two tasks at the same time is challenging, requiring a major reorientation in the economy. Growth is unlikely to be buoyant as the initial corrective fiscal measures are implemented, but with financial sector policies to preserve the soundness of the banking sector and strong medium-term fiscal and structural policies, the economy will emerge from this experience in better shape than before with higher growth and employment.”

This was German Prime Minister Angela Merkel’s most satisfying moment – successfully extorting the head of the international socialists to betray everything his movement stood for and lead the attack on his own supporters. Papandreou and his party were discredited and doomed politically. In 2012, the ruling Greek parties purged their parliamentary members who voted against inflicting austerity on the Greek people. The Greek party that refused to bow to the troika’s extortion was Syriza.

Austerity in response to a recession is economic malpractice. Attacking workers’ wages is economic malpractice and vicious. Responding to a recession with fiscal stimulus is economically sound – a fact the vast majority of economists agree with. Austerity did not produce “little if any benefit” to the Greek people – it produced a catastrophe. Austerity has produced terrible human suffering – a fact that the NYT EU’s reporters know but rarely report. In an article supposedly devoted to explaining the potential that the Greek people will support Syriza in the upcoming election, the NYT ignored the most important reasons for their popularity.

The NYT acts like Alexis Tsipras is the one who does not understand economics, advocates policies that are economically illiterate, and should betray his policies and supporters, continue to inflict austerity on the Greek people, and wait another six years praying for the confidence fairy to appear in Athens. The reality, as Krugman and we have been explaining for years, is that the troika’s economic dogmas represent malpractice, that Tsipras’ policies are both humane and economically competent, and that his party is so popular because of its refusal to go the route of PASOK and betray the Greek people and Syriza’s principles. The worst thing Tsipras could do is listen to the NYT’s advice. We know now that when the NYT pins the “populist” label on a Greek leader it means that he or she puts “ordinary Greeks first” – exactly where they belong.